This paper examines the effects of the interaction between the oil market and measures of global liquidity on the Brazilian real exchange rate against the U.S. dollar, using an SVAR framework. The results show that approximately 16% of the variance of the real exchange rate is associated with oil-specific demand shocks in the long run. Supply and aggregate demand shocks are less important. The recovery of the Brazilian real exchange rate in the aftermath of the global financial crisis is more related to advanced economies' liquidity than oil prices. Oil price changes affect the interest rate spread, which puts further pressure on the real exchange rate. Our results shed light on the impact of oil price shocks on the Brazilian economy by providing important insights into the foreign exchange policy in Brazil.

This paper examines the effects of the interaction between the oil market and measures of global liquidity on the Brazilian real exchange rate against the U.S. dollar, using an SVAR framework. The results show that approximately 16% of the variance of the real exchange rate is associated with oil-specific demand shocks in the long run. Supply and aggregate demand shocks are less important. The recovery of the Brazilian real exchange rate in the aftermath of the global financial crisis is more related to advanced economies' liquidity than oil prices. Oil price changes affect the interest rate spread, which puts further pressure on the real exchange rate. Our results shed light on the impact of oil price shocks on the Brazilian economy by providing important insights into the foreign exchange policy in Brazil.

A well documented stylized fact in commodity-exporting countries is the robust relationship between commodity prices and real exchange rates. However, empirical evidence of factors that affect the strength of the commodity price-real exchange rate connection remains inconclusive. In this paper, we investigate how structural and financial factors affect the relationship between world commodity prices and the Brazilian real exchange rate during the floating exchange rate regime. The key results show that the strength of the real exchange rate response to real commodity price fluctuations depends on the trade openness in the long run and on the country risk in the short run. Our findings provide important insights for the appropriated design of foreign exchange policy in Brazil.

A well documented stylized fact in commodity-exporting countries is the robust relationship between commodity prices and real exchange rates. However, empirical evidence of factors that affect the strength of the commodity price-real exchange rate connection remains inconclusive. In this paper, we investigate how structural and financial factors affect the relationship between world commodity prices and the Brazilian real exchange rate during the floating exchange rate regime. The key results show that the strength of the real exchange rate response to real commodity price fluctuations depends on the trade openness in the long run and on the country risk in the short run. Our findings provide important insights for the appropriated design of foreign exchange policy in Brazil.