Testing the effects of real exchange rate pass-through to unemployment in Brazil

USMAN O., Elsalih O. M.

Economies, cilt.6, sa.3, 2018 (Scopus) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 6 Sayı: 3
  • Basım Tarihi: 2018
  • Doi Numarası: 10.3390/economies6030049
  • Dergi Adı: Economies
  • Derginin Tarandığı İndeksler: Scopus
  • Anahtar Kelimeler: Linear ARDL, Nonlinear ARDL, Real exchange rate pass-through, Unemployment rate
  • İstanbul Ticaret Üniversitesi Adresli: Evet

Özet

This paper attempts to test the pass-through of the real exchange rate (RERT) to unemployment in Brazil over the period 1981M1-2015M11 using linear and nonlinear Autoregressive Distributed Lag (ARDL) models. The result of the linearity test suggests that the relationship between RERT and unemployment is linear in the short-run and nonlinear in the long-run. Therefore, using the symmetric ARDL model for the short-run analysis, we find that an increase in the RERT decreases the unemployment rate. The result of the nonlinear ARDL for the long-run analysis shows that the unemployment rate reacts to the RERT appreciations and depreciations differently with depreciations having a strong effect. However, the pass-through of the RERT to unemployment is incomplete both in the short- and long-run. These findings have important policy implications for the designing of appropriate monetary policy in response to a rise in unemployment resulting from a change in the real exchange rate.