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

Vol. 39 No. 2 (2019)

Apr-Jun / 2019
Published April 1, 2019
PDF-Portuguese (Pt-BR)
PDF-Portuguese (Pt-BR)

How to Cite

Ramalho Ribeiro da Fonseca, Mateus, Eliane Cristina de Araújo, and Elisangela Araújo. 2019. “Non-Linearity Between Exchange and Prices in Brazil and Implications for an Economic Development Strategy”. Brazilian Journal of Political Economy 39 (2), 263-84. https://doi.org/10.1590/0101-31572019-2877.

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

Mateus Ramalho Ribeiro da Fonseca
Doutor em Economia – Área de Concentração: Economia do Desenvolvimento – Programa de Pós- -Graduação em Economia da Universidade Federal do Rio Grande do Sul (PPGE/UFRGS), Porto Alegre/ RS, Brasil.
Eliane Cristina de Araújo
Professora Associada da Universidade Estadual de Maringá-UEM e pesquisadora do CNPq, Maringá/ PR, Brasil.
Elisangela Araújo
Professora Adjunta da Universidade Estadual de Maringá – UEM, Maringá/PR, Brasil.
Brazilian Journal of Political Economy, Vol. 39 No. 2 (2019), Apr-Jun / 2019, Pages 263-284

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.


Keywords: Exchange rate, inflation, Brazilian economy, development economy