A Macroeconomic Perspective on Brazilian FX Swaps

Abstract

This paper takes a macroeconomic perspective on Brazilian foreign
exchange swaps. It was found that foreign exchange swap shocks lower
ination, ease nancial conditions by reducing the risk premium, are
associated with temporarily higher economic activity and lower interest
rates in the medium run. After a swap shock, the impact on the
exchange rate is at best short-lived. A counterfactual exchange rate
without the contribution of swap shocks shows periods when the Real
would be almost 4 percent weaker.