Template-type: ReDIF-Article 1.0
Author-Name: Fabrizio Almeida Marodin
Author-Email: fmarodin@uci.edu
Author-Workplace-Name: University of California Irvine
Author-Name: Marcelo Savino Portugal
Author-Email: msp@ufrgs.br
Author-Workplace-Name: Universidade Federal do Rio Grande do Sul
Title: Exchange Rate Pass-Through in Brazil: À Markov Switching DSGE Estimation for the Inflation Targeting Period
Abstract: This paper investigates the nonlinearity of exchange rate pass-through in the Brazilian economy during the inflation targeting period (2000-2018) using a Markov-switching new Keynesian DSGE model. We find evidence of two distinct regimes for 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 as almost zero, only 0.00057 of a percentage point given a 1% exchange rate shock. In comprasion, the expected pass-through to inflation under a 'crisis' regime is 0.1035 of a percentage point, for the same exchange rate shock. These results allow us to identify four distinct cycles for exchange rate pass-through during the inflation targeting period in Brazil, and suggest that higher central bank credibility and anchored inflation expectations may be related to lower levels of pass-through.
Classification-JEL: E31, F31, C3
Keywords: exchange-rate pass-through, New Keynesian model, DSGE, regime switching, Markov chain, central bank credibility
Journal: Russian Journal of Money and Finance
Pages: 36-66
Volume: 78
Issue: 1
Year: 2019
Month: March
DOI: 10.31477/rjmf.201901.36
File-URL: https://rjmf.econs.online/upload/iblock/300/RJMF_78-01_ENG_Marodin.pdf
Handle: RePEc:bkr:journl:v:78:y:2019:i:1:p:36-66