Maria Luiza Falcão Silva

Fundamentals versus external shocks: Brazil's growing exposure to currency crises

While financial globalization does not lack theoretical economic merit, the more far-reaching practical consequences of this phenomenon are often not fully appreciated from the vantage point of North America or the European Union. In particular, globalization can make it more difficult for emerging economies to achieve macroeconomic stabilization. This is especially true if the countries in question have chosen the vehicle of pegged exchange rates as an important element of domestic anti-inflation policy. The chief macroeconomic difficulties for emerging economies in a world of volatile capital flows can include a loss of monetary control, a real appreciation of the domestic currency, and a worsening of economic fundamentals leading to damaging currency crises. This paper concentrates on the recent experience of Brazil as illustrative of the abject plight faced by many developing countries attempting to secure economic stabilization against the background of the present globalized international economy.

Monetary and exchange rate arrangements: a puzzle to be solved among major MERCOSUR

This book discusses the future of MERCOSUR, focusing on monetary union and macroeconomic policy co-ordination, and addresses a number of important questions including: is it possible, or even desirable, to achieve monetary integration?; what would the pre-conditions be for establishing such a union?; what would the convergence criteria be for joining the monetary union?; and what are the expected economic consequences for the member countries? These questions are all addressed with particular reference to the experience of EMU and the lessons which can be learnt by MERCOSUR countries, in terms of the difficult transitions they may have to face.

Reflections on the perspectives of the global economy from the point of view of emerging economies

Abstract. Recently a number of emerging economies, with high inflation and various kinds of imbalances have experienced what has come to be referred to as dollarization– the phenomenon of currency substitution where the dollar gradually replaces the national currency in the performance of its fundamental functions. The phenomenon is most commonly encountered as a component of the exchange-rate-based stabilization programs implemented in a number of emerging economies in Latin America, Asia and the Middle East. The fundamental issue we want to explore is whether this process forces the monetary authorities of emerging economies to act with their hands tied, as if caught in a trap. It is argued that when the expansion of liquidity and domestic credit is determined by the quantity of foreign-exchange reserves, an independent monetary policy vanishes and national sovereignty itself is shackled. Since this scenario typically occurs in a world of increasing globalization of finance, this paper also discusses (with reference to emerging economies) the risks and implications of capital inflows for macroeconomic policy autonomy, economic instability, and vulnerability to external shocks.

Macroeconomic Coordination and Policy Problems of Regional Blocs: Reflections on the Mercosur Experiment

The international economy has undergone in the last few years a deep transformation. It is important to recall briefly that the international economy has shifted from being a bipolar model, led by the United States and the former Soviet Union, to being a multipolar model with three great economic powers- the European Union (EU), Japan, and the United States — plus Russia and China competing for the leadership of international trade. The formation of global markets is a matter of immense concern for the economic and political survival of many developing countries. “Stimuli from global markets causes the formation of regional markets, and the eventual success or failure of these markets” (Thorstensen and Lozardo, 1995, p.3). As a result several countries are converging to consolidate regional economic blocs, trading agreements and preferences, and monetary unification.