This paper provides econometric estimates of trade elasticities for Brazil obtained
through cointegration and vector auto regression models and controlling for the effects
of exchange rate volatility, capacity utilization, and changes in import tariffs.
The results suggest that (i) recent market expectations may have been unduly pessimistic
regarding the responsiveness of Brazil's trade flows to the real exchange rate, but
(ii) the GDP growth rates targeted by the new government may put downward pressure
on the exchange rate and thus render the achievement of official inflation targets
considerably more difficult if structural reforms are not implemented.