ABSTRACT
This chapter analyzes the role of the exchange rate on the determination of the Brazilian trade balance for basic and processed agricultural products from 1961 to 1995. It evaluates the effectiveness of an exchange policy compared to an income policy in terms of their effects on the total agricultural trade balance. The chapter analyzes the evolution of the Brazilian trade balance during the period from 1961 to 1995, showing the different performance of the aggregated basic and processed agricultural products sector in comparison to the other sectors of the economy. It presents a brief literature review on exchange rates and international trade of goods in order to stress that the specific objectives for this chapter have not been appropriately studied yet in Brazil. The chapter focuses on cointegration analysis and the error correction mechanism, methods that are proposed as suitable econometric devices to determine the exchange rate's long and short-run effects on the total agricultural trade balance.
