Relative price of nontraded goods, commercial policy and cycles in brazil

Abstract

This paper develops a reduced form equation for the real exchange rate, or the relative price of nontraded to traded goods. It uses a three sector model: one nontraded, services, and two traded commodities, agriculture and industry. It assumes equilibrium in the nontraded market, and takes into account both the trend in the economy as well as its cycles. The estimates are very suggestives. They allow understanding of the degree of substitution between sectors, as well as to test for temporary effects on the real exchange rate due to disequilibrium between income and absorption.