Notes on Cyclical tendency to the overvaluation of the real

Transcrição

1 Notes on Cyclical tendency to the overvaluation of the real Andre de Melo Modenesi (UFRJ and CNPq) Rui Lyrio Modenesi (Ex UFF) Paulo Gala (FGV SP) Objective This note addresses the question: To what extent financial regulation in Brazil was effective in neutralizing the tendency to the overvaluation of the exchange rate in Brazil since the Real Plan? Answer: no; and We argue in favor of a new policy mix that (combined with those measures) could avoid overvaluation of real. 1

2 1) Exchange Rate Behavior after the Real Plan Overvaluation of real has been a central element of price stabilization in Brazil (since Real Plan) even after formal abandon of exchange anchor (and the use o IT). Exchange rate has been the main channel of monetary policy transmission: overvaluation is not an undesirable result of monetary policy but the essence of inflation control (for more than 15 years). Exchange Rate after Real Plan Brazil:

3 2) Financial Regulation Aiming at Neutralizing the Overvaluation of Real Measures trying to control capital inflows and avoiding overvaluation have barely been able to keep the real in its already overvalued position. Were effective in reducing the speed of appreciation of real after first time IOF was imposed (Oct./ 09) Trend line became considerably less steep: Before: ; After: ) Financial Regulation or New Policy Mix? Not unexpected that financial regulation measures weren t effective in reversing overvaluation of real: It has a major structural cause, Dutch disease, and is boosted by two components of current policy mix: i) High interest rates; ii) Use of exchange rate to anchor prices. 3

4 We are not implying that financial regulation measures do not have a important role to play: they should be adopted with an appropriated new policy mix. Taxes on capital inflows are not likely to be able to avoid overvaluation in the presence of excessively high interest rates. In order to keep inflation on track with lower interest rates a new fiscal regime will be needed (as proposed by New Developmentalism). Our main proposition: financial regulation alone would not be able to compensate for an inadequate policy mix. The most important is to adopt a new mix that: 1) favors a competitive exchange rate; with 2) low interest rates and a fiscal anchor (in place of exchange rate anchor) to control inflation. 4

5 Implementing the new policy mix requires answering two strategic questions: 1) How to deal with inflationary pressures resulting from devaluation of real (given high sensibility of inflation to exchange rate)? 1.1) Inflationary pressures resulting from exchange devaluation will be transitory or permanent? 1.2) What is the magnitude of the fiscal surplus needed to compensate those pressures? 2) Will the new policy mix have the same political support that the current one has? Methodology Those questions can be answered with the help of time series econometrics (VAR): 1) Estimate inflation inertia the greater the inertia, the more permanent inflationary pressures will be; and 2) Inflation s sensibility to fiscal spending the more sensible to government spending inflation is the less will be the fiscal surplus needed to curb inflation. Methodology used by Araújo and Modenesi (2010b) to estimate exchange rate pass through can be adapted for our purposes here. 5

6 The End Thank you for your attention! Tendency to Overvaluation of Real: 01/Oct./ /Mar ,45 2,35 2,25 2,15 2,05 1,95 1,85 1,75 1,65 1,55 2,49 y = 0,0008x + 32,806 R² = 0,7364 IOF 1 IOF 2 IOF 3 Comp. 1,87 1,70 1,68 6

7 Before the Adoption of Financial Measures: 10/Jan./ /Oct./2009 2,45 2,35 2,25 2,15 2,05 1,95 1,85 1,75 1,65 1,55 2,49 y = 0,0016x + 65,092 R² = 0,6879 1,70 After the Adoption of Financial Measures: 16/Oct./ /Mar./2011 2,45 2,35 2,25 2,15 2,05 1,95 1,85 1,75 1,65 1,55 1,88 y = 0,0002x + 10,629 R² = 0,3622 1,65 7

8 Political Economy There is a powerful convention favoring the current mix: Existe, pois, uma ampla e poderosa constelação de interesses, estruturada ao longo do tempo em torno à combinatória altos juros câmbio valorizado, que estabeleceu uma convenção que estes elementos são essenciais para o desenvolvimento do país (Erber, 2011) How will the interest groups which benefit from current mix react to the imposition of a new one? Will the groups that would benefit from the new mix be sufficiently well organized to support it? Financial Regulation Measures against the Overvaluation of Real MEDIDA DATA OBJETIVO IOF de 2% sobre ingresso de capital estrangeiro no País para renda fixa, fundos e renda variável. 19/10/09 Conter especulação no mercado de capital interno e na Bolsa de Valores e valorização do real frente ao dólar. IOF de 4% sobre ingresso de capital estrangeiro no País para renda fixa e de fundos. Autorização ao Tesouro Nacional para compra de US$ 10,7 bilhões no mercado à vista para antecipação de pagamento da dívida externa. Incidência de IOF em Operações de Câmbio Simultânea. 05/10/10 Conter especulação no mercado de capital interno e na Bolsa de Valores e valorização do real frente ao dólar. 05/10/10 Reduzir a quantidade de dólar no mercado interno e, consequentemente, conter a valorização do real frente ao dólar. 05/10/10 Evitar que o capital estrangeiro entre no país via bolsa de valores, que possui alíquota de IOF de 2%, e migre para o mercado de renda fixa. 8

9 Financial Regulation Measures against the Overvaluation of Real (cont.) IOF de 6% sobre ingresso de capital estrangeiro no País para renda fixa, derivativos, fundos e de operações de câmbio. Recolhimento sob forma de compulsório (pelas instituições financeiras) de 60% sobre a posição vendida que exceder o menor dos seguintes valores: US$ 3 bilhões ou Patrimônio de Referência (PR) em nível I. Autorização ao Fundo Soberano do Brasil (FSB) para operar no mercado cambial à vista ou por meio de derivativos. Fonte: Banco Central do Brasil e Ministério da Fazenda 18/10/10 Conter especulação no mercado de capital interno e na Bolsa de Valores e valorização do real frente ao dólar. Forçar a permanência de recursos no país em pelo menos um ano. 06/01/11 Reduzir o passivo cambial dos bancos e, consequentemente, reduzir a valorização do real frente ao dólar. 10/01/11 Além do mercado à vista poderá atuar no mercado futuro de dólares (derivativos) para conter a queda do dólar ante o real. Monthly Consumer Price Inflation Brazil: 01/ / Collor Bresser Cruzado Verão Collor 2 Real '