Asymmetric effects from exchange to inflation: evidence to Brazil via NARDL models

Abstract

This paper tests the pass-through effect for Brazil from 1999 to 2024 using nonlinear
distributed lag autoregressive models (NARDL). Inflation (IGP-M; IPCA; monitored;
free; tradable and non-tradable) cointegrates with the exchange rate and the vector of covariates.
The ECM, on the other hand, points to inflation resilience in the short term, indicating
nominal rigidity. Dynamic multipliers reveal that the exchange rate pass-through to inflation
is asymmetric, but heterogeneous. The IPCA and free and non-tradable prices have
positive asymmetry, in which the pass-through in the face of exchange rate depreciations is
greater than that of appreciations. The other prices showed negative asymmetry.

JEL Classification: E31; F31; F41.