Simone Maciel Cuiabano Miss, Msc., Economics, University of Brasilia/Ministry of Finance, CA 9 LOTE 16 APT. 612 ed. Green Hills Lago Norte, Brasilia, 71503509, Brazil and José Ângelo Divino, Ph.D., Economics, Catholic University of Brasilia, SGAN 916 Modulo A - Sala A-113, Brasilia, 70190-045, Brazil.
This work aims to test a variant of the monetarist exchange rate determination model in Brazil, as available in Obstfeld and Rogoff (1996) by cointegration tests and a GMM estimation for short run. The theorical model starts with a simple model of money demand derived by Cagan, in which it is applied the hypotheses of purchase power parity and uncovered interest parity (UIP). Using monthly data of GDP, exchange and interest rate in Brazil since the adoption of the new currency (Real) and data for US interest rate and inflation as a proxy for international variables, it applies cointegration tests - using Johansen and Engle-Granger - to verify the long run behavior of variables for the Brazilian case from 1996 till 2006. By the adjustment speeds given by the Johansen and the model of error-correction we reach an exchange rate model determination in short term. At the presence of endogeneity in the variables, it was estimated an instrument model by the Generalized Method of Moments (GMM). Results points to the existence of long and short run equilibrium, with exception of the proxy for international interest rate which may indicate the non existence of UIP for the Brazilian case
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