Brazil as an Open Commodity Market

Export Import
Understanding Brazilian Economic Structure
50% 120%

Trade Openness
Oil Price r.to $100 (Left)
(Right)
40% Effective Exchange Rate 100%
(Right)

30% 80%

Public Debt
(Right)
20% 60%

Interest Rate
Unemployment
(Left)
(Left)
10% 40%

Consumer Price
Real GDP Growth (Left)
0% (Left)2011 20%
2007 2008 2009 2010 2012 2013 2014 2015 2016 2017

-10% 0%
Interest Rate Unempl oyment Rate Cons umer Pri ce %Change Rea l GDP %Change
Tra de Opennes s Rea l Effective Excha nge Rate (%) Publ i c Debt % of GDP Oi l Pri ce r.to $100
An Interaction of Three Markets

Market for Goods & Services Money Market Currency Exchange Market

Price Interest Forex Currency

/R$ /% per R$
SM1 SX1

S1

P1 I1 X1

D1 DM1 DX1

Quantity Quantity Quantity

of R$ of R$
Commodity Downturn 2015 brought out reduction in income and spending

Market for Goods & Services Money Market Currency Exchange Market

Price Interest Forex Currency

/R$ /% per R$
SM1 SX1

S1

P1 I1 X1
P2

D2 D1 DM1 DX1

Quantity Quantity Quantity

of R$ of R$
Coupled with Corruption Scandals, It Caused Capital Flight, Depreciating R$

Market for Goods & Services Money Market Currency Exchange Market

Price Interest Forex Currency

/R$ /% per R$
SM1 SX1

S1

P1 I1 X1
P2
X2

D2 D1 DM1 DX2 DX1

Quantity Quantity Quantity

of R$ of R$
Imported Inflation Increased Cost of Goods and Shift Supply Curve Upwards, Inflating Prices

Market for Goods & Services Money Market Currency Exchange Market

Price S2 Interest Forex Currency

/R$ /% per R$
SM1 SX1

S1

P3

P1 I1 X1
P2
X2

D2 D1 DM1 DX2 DX1

Quantity Quantity Quantity

of R$ of R$
Rate Hikes Failed to Contain Inflation with Little Room Left for Demand to Move (in a Recession)

Market for Goods & Services Money Market Currency Exchange Market

Price S2 Interest Forex Currency

/R$ /% per R$
SM2 SM1 SX1

S1

P3
P4 I2

P1 I1 X1
P2
X2

D3 D2 D1 DM1 DX2 DX1

Quantity Quantity Quantity

of R$ of R$
Rate Hikes Failed to Contain Capital Outflow, Already Set to Move Away from Emerging Markets Deemed Risky

Market for Goods & Services Money Market Currency Exchange Market

Price S2 Interest Forex Currency

/R$ /% per R$
SM2 SM1 SX1

S1

P3
P4 I2

P1 I1 X1
P2
X2
X3

D3 D2 D1 DM1 DX2 DX1

DX3

Quantity Quantity Quantity

of R$ of R$
Perhaps Answers Lie in the Supply Curve? And Perceptions

Market for Goods & Services Money Market Currency Exchange Market

Price S2 Interest Forex Currency

/R$ /% per R$
SM2 SM1 SX1

S1

P3
P4 I2

P1 I1 X1
P2
X2
X3

D3 D2 D1 DM1 DX2 DX1

DX3

Quantity Quantity Quantity

of R$ of R$