Exchange rate pass-through evolution in Brazil: a state space approach

Autor(es) e Instituição: 
Rafael Martins de Souza ENCE/IBGE
Luiz Felipe Pires Maciel IBRE/FGV
Adrian Heringer Pizzinga IA/PUC-Rio
Rafael Martins de Souza

In this paper we propose a Gaussian state space model to estimate the exchange rate pass-through of the Brazilian Real against the American Dollar with a estimation procedure adapted to deal with endogeneity. The model formulation is suitable to accomplish the stylized fact that the exchange rate pass-through is varying over time in Brazil. We also impose and test restrictions over the time varying coecients to decide whether the producer currency pricing (PCP) or the local currency pricing (LCP) hypotheses are acceptable for a set of Brazilian Wholesale Price Index General Origin, IPA-OG. Our preliminary results suggest that both hypotheses are not supported by the data. Moreover, we still observe the aggregation e ect over the estimates, as long we estimated the model for 3 di erent levels of the Brazilian IPA-OG.