Expectations and exchange rates in a Keynes–Harvey model: an analysis of the Brazilian case from 2002 to 2017

This paper investigates the statistical relationship between the future expectations of the exchange rate and GDP growth and the current nominal exchange rate in Brazil during the period 2002–2017. The theoretical framework on which the paper is based is a decision-making model grounded in Keynes (1921; 1936) and Harvey (2006; 2009a), from which the paper's empirical model emerges. This model is tested empirically with autoregressive distributed lag models to identify short- and long-term statistical relationships in time series. The empirical estimations suggest that expectations of future changes in both the exchange rate and GDP growth have a statistically significant relationship with the current nominal exchange rate in Brazil, just as the Keynes–Harvey model predicts.