Testing the Effects of Real Exchange Rate Pass-Through to Unemployment in Brazil

Ojonugwa Usman () and Osama Mohammed Elsalih
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Osama Mohammed Elsalih: Department of Economics, Eastern Mediterranean University, 99628 Famagusta, Turkish Republic of Northern Cyprus

Economies, 2018, vol. 6, issue 3, 1-13

Abstract: This paper attempts to test the pass-through of the real exchange rate (RERT) to unemployment in Brazil over the period 1981M1–2015M11 using linear and nonlinear Autoregressive Distributed Lag (ARDL) models. The result of the linearity test suggests that the relationship between RERT and unemployment is linear in the short-run and nonlinear in the long-run. Therefore, using the symmetric ARDL model for the short-run analysis, we find that an increase in the RERT decreases the unemployment rate. The result of the nonlinear ARDL for the long-run analysis shows that the unemployment rate reacts to the RERT appreciations and depreciations differently with depreciations having a strong effect. However, the pass-through of the RERT to unemployment is incomplete both in the short- and long-run. These findings have important policy implications for the designing of appropriate monetary policy in response to a rise in unemployment resulting from a change in the real exchange rate.

Keywords: real exchange rate pass-through; unemployment rate; linear ARDL; nonlinear ARDL (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jecomi:v:6:y:2018:i:3:p:49-:d:168120

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