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This paper analyzes the role of fundamentals and the net positions of speculators in determining the Brazilian exchange rate from April 2002 to August 2012. Based on a cointegrated svar model, we found empirical evidence to support our hypothesis that the microeconomic approach (Evans and Lyons, 2002) and the monetary model (Bilson, 1978) to determine the exchange rate are consistent with one another. Unlike in other empirical studies, our analysis demonstrates that the net positions of speculators and economic fundamentals constitute two channels (one liquidity-related, the other information-related) that can contribute to explaining the dynamics of the Brazilian exchange rate in the short and long term. [ABSTRACT FROM AUTHOR]

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