The Decline of the Exchange Rate Pass-Through in Brazil: Explaining the "Fear of Floating"
AbstractThis paper argues that the pass-through in Brazil has fallen compared with estimates in other studies done for earlier time periods, and remains low. Whereas pass-through effects where high and close to 1 in the high-inflation period, they seem to have fallen to around 0.2 after the Real Plan stabilization, a number that is similar to the Import Substitution Industrialization (ISI) period of the 1950s and 1960s. Conventional results suggest that low and stable inflation environments lead to low levels of exchange rate pass-through and thus contribute to weakening the âfear of floatingâ phenomenon experienced by some developing countries. In spite of lower pass-through effects, the Brazilian Central Bank has maintained high interest rates in order to control the exchange rate. This paper suggests that âfear of inflationâ provides justification for the central bank's persistent âfear of floating.â
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal International Journal of Political Economy.
Volume (Year): 37 (2008)
Issue (Month): 4 (December)
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Brazil; inflation; pass-through;
Other versions of this item:
- Carlos Eduardo Schönerward da Silva & Matías Vernengo, 2008. "The Decline of the Exchange Rate Pass-Through in Brazil: Explaining the ‘Fear of Floating’," Working Paper Series, Department of Economics, University of Utah 2008_11, University of Utah, Department of Economics.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
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