In this paper we focus the relation between exchange rates, interest rates, Balance of Payments, and its financing, for the Brazilian economy after the Real Plan. Monetary policy has two important effects upon external accounts financing issues: it makes short-term capital more available, via more appealing fixed yield investments, and reduces the current account deficits' size, via effects generated by the net exports of goods and services. Based on the estimated effects of exchange rate and interest rate upon external accounts, we conclude that a Monetary Conditions Index may be useful as an indicator of future pressures on Brazilian external accounts. So, monetary-exchange policies focused to control current account deficits (or, alternatively, trade balance or net exports) can be built on such index.
