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Non-linearity between exchange and prices in Brazil and implications for an economic development strategy

Author

Listed:
  • Mateus Ramalho Ribeiro da Fonseca
  • Eliane Cristina de Araújo
  • Elisangela Araújo

Abstract

The objective of this article is to perform an analysis of monetary policy in Brazil, using a Markov Chain Autoregressive Vector (MS-VAR) model, in the search for evidence of non-linearity in the relationship between exchange and prices in Brazil. The analysis showed that in periods of exchange appreciation, both on the demand side and the supply side, there is a set of forces that determine a downward trajectory for price levels, suggesting that the exchange rate plays a fundamental role in the control of inflation. However, there is a need to reassess the role of the exchange rate in Brazil. JEL Classification: E44; E52; O23.

Suggested Citation

  • Mateus Ramalho Ribeiro da Fonseca & Eliane Cristina de Araújo & Elisangela Araújo, 2019. "Non-linearity between exchange and prices in Brazil and implications for an economic development strategy," Brazilian Journal of Political Economy, Center of Political Economy, vol. 39(2), pages 263-284.
    • Handle: RePEc:ekm:repojs:v:39:y:2019:i:2:p:263-284:id:36
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    More about this item

    Keywords

    Exchange rate; inflation; Brazilian economy; development economy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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