 Exchange Rate Pass-Through in Brazil: a Markov switching estimation for the inflation targeting period (2000-2015)Fabrizio Marodin and Marcelo Portugal No 473, Working Papers Series from Central Bank of Brazil, Research Department Abstract: This paper investigates the nonlinearity of exchange rate pass-through in the Brazilian economy during the floating exchange rate period (2000-2015) using a Markov-switching semi-structural new Keynesian model. We apply the methods proposed by Baele et al. (2015) and a basic new Keynesian model, with the addition of new elements to the AS curve and a new equation for the exchange rate dynamics. We find evidence of two distinct regimes for the exchange rate pass-through and for the volatility of shocks to inflation. Under the so-called “normal” regime, the long-run pass-through to consumer prices inflation is estimated at near zero value, only 0.00057 percentage point given a 1% exchange rate shock. Comparatively, the expected pass-through under a “crisis” regime is of 0.1035 percentage point to inflation, for the same exchange rate shock. The Markov-switching (MS) model outperforms the fixed parameters model according to several comparison criteria. The results allowed us to identify the occurrence of three distinct cycles for the exchange rate pass-through during the inflation targeting period in Brazil. Date: 2018-02 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:473 Access Statistics for this paper More papers in Working Papers Series from Central Bank of Brazil, Research Department |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.