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Sectoral Exchange Rate Pass-through to Manufacturing Prices: A GVAR Approach

Author

Listed:
  • Sérgio Kannebley

    (Sao Paulo University)

  • Diogo de Prince

    (Federal University of Sao Paulo)

  • Felipe dos Santos Costa

    (Sao Paulo University)

Abstract

This article produces estimates of exchange rate pass-through (ERPT) to import and wholesale prices considering the hypothesis of the existence of strategic interaction between local and foreign producers in the domestic market. We estimate a global vector autoregression (GVAR) model to address the unobservable common factor and the presence of global variables for 21 sectors of Brazilian manufacturing. This model internalizes that producer and import pricing is related within the sector, in addition to having an intersectorial relationship due to the linkage of the production chain. We estimate the aggregate ERPT for import and wholesale prices of 73% and 22% after twenty quarters of the shock, respectively. The results provided by the GVAR allow us to identify two different dynamics for the estimates of ERPT to import prices that are associated differently with the degree of the share of imports in sectors and the domestic market concentration. For approximately 50% of the manufacturing sectors considered, we have a more interdependent adjustment between foreign and domestic producers.

Suggested Citation

  • Sérgio Kannebley & Diogo de Prince & Felipe dos Santos Costa, 2023. "Sectoral Exchange Rate Pass-through to Manufacturing Prices: A GVAR Approach," Open Economies Review, Springer, vol. 34(4), pages 919-958, September.
    • Handle: RePEc:kap:openec:v:34:y:2023:i:4:d:10.1007_s11079-023-09711-y
    DOI: 10.1007/s11079-023-09711-y
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    More about this item

    Keywords

    Exchange rate pass-through; Manufacturing sectors; GVAR model;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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