EXCHANGE RATE PASS-THROUGH TO INFLATION FOR THE BRAZILIAN ECONOMY (2003-2019): ARDL MODELS

Flávio Vilela Vieira () and Valdecy Caetano de Sousa Junior ()
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Flávio Vilela Vieira: Universidade Federal de Uberlândia (UFU)
Valdecy Caetano de Sousa Junior: Universidade Federal de Uberlândia (UFU)

Revista de Economia Mackenzie (REM), 2021, vol. 18, issue spe, 39-66

Abstract: The goal of this paper is to investigate the relation between changes in the exchange rate and inflation for Brazil for the period of January 2003 to December 2019. Other than estimating the exchange rate pass-through, we investigate the existence of asymmetries. In order to achieve this goal, we estimate four linear (auto-regressive distributed lag – ARDL) and four non-linear (N-ARDL) models. The results indicated an average pass-through of 0.08% and 0.19% for the broad national consumer price index (à ndice Nacional de Preços ao Consumidor Amplo [IPCA]) and general price index/internal availability (à ndice Geral de Preços/ Disponibilidade Interna [IGP-DI]), respectively. In the non-linear models, the average pass through was 0.06% for the IPCA and 0.18% for the IGP-DI. The results indicated the presence of asymmetries between appreciations and depreciations and that the linear models tend to underestimate the exchange rate pass-through. The tests confirmed Granger’s (1969) causality for changes in the exchange rate and inflation.

Keywords: Exchange rate; inflation; pass through; ARDL models; NARDL models. (search for similar items in EconPapers)
JEL-codes: C32 F31 F41 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:aft:journl:v:18:spe:2021:specialissue:p:39-66

DOI: 10.5935/1808-2785/rem.v18nespp.39-66

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