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Exchange rate and prices in Brazil: an empirical assessment

Abstract

This project intends to explore the relationship between price setting of domestic and foreign tradable goods and the degree of exchange rate transfer in this process. This project seeks to contribute to the literature on the relationship between prices of tradable goods and the exchange rate in Brazil at the disaggregated level, as well as the use of econometric methodologies that consider the presence of common correlated factors in order to capture the intersectoral relationship.Estimates of exchange rate pass-through at import and wholesale prices will have as their starting point the analytical framework used by Kannebley et. al. (2016), using the Global Vector Autoregressive (GVAR) methodology proposed by Pesaran et. al. (2004). Through this analysis, in addition to the expectation of obtaining new results referring to the exchange rate pass-through, it will be possible to test the sensitivity of these prices to global shocks.In addition, a second work would be to analyze the pricing to the panel market in the sense that there a differentiation between different destination markets and products in the Knetter (1989) line. The methodology used will be the one of Bai, Kao and Ng (2009) of unobserved common factors between the cross-sections by latent variables, Pesaran (2006) by the approach with the variables of the model and the adaptation of Kapetanios et al (2011) in the case of presence of unit root.From these new estimates will be sought to establish relationships between these measures and indicators of market share of both imports and Brazilian exports (AU)

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