Notes on cyclical tendency to the overvaluation of the real

Abstract

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 1994 Real Plan?' Aiming at answering this question, this note is organized as follows: after this short introduction, we briefly describe the Brazilian exchange rate behavior after the Real Plan, emphasizing its key role in keeping prices stable. In section 3, the recent measures adopted by the Brazilian Central Bank (BCB) aiming at avoiding the overvaluation of real will be summarized. In section 4, we argue in favor of a new policy mix that could avoid overvaluation of the currency. Finally, some issues will be raised in order to effectively neutralize the overvaluation of real.