Abstract

BRESSER-PEREIRA, Luiz Carlos. The Tendency to Overvalue the Exchange Rate. Economía UNAM [online]. 2009, vol.6, n.18, pp.75-88. ISSN 1665-952X.

In developing countries there is a tendency to the overvaluation of the exchange rate. It has two structural causes: the Dutch disease and the attraction of higher profit and interest rates, usually prevailing in developing countries, on foreign capitals. Economic policy presents four more causes for this: the policy of growth through foreign savings, the control of inflation by way of exchange rate anchors, the policy of "capital deepening", and the populist aspect linked with the exchange rate. There are two possible outcomes: either the country neutralizes this tendency and achieves rapid growth, or it does not and it will suffer cyclical balance of payment crises.