Stock Market Performance, the Exchange Rate, and the Brazilian Economy

Abstract

Incorporating the goods market equilibrium, an interest-rate rule, and aggregate supply and applying a generalized least squares (GLS) method, this analysis finds a higher real stock price, real appreciation of the Brazilian “real,” increased government deficit as a percent of GDP, increased U.S. output, or a lower real federal funds rate would raise Brazil’s real GDP. Thus, maintaining a robust stock market or pursuing real appreciation would help stimulate the Brazilian economy. Brazil’s real output will benefit from an economic recovery in the U.S. and monetary easing by the Federal Reserve Bank.