Exchange Rate Behavior in the BRICS

Abstract

This article aims to investigate the behavior of exchange rate in the BRICS
countries, with an emphasis on exchange rate passthrough and exchange rate determination
empirical models. By applying the ARDL Bounds Testing Approach Methodology, from
January 2005 to December 2019. Our main results show that: i) there is a long run
cointegration among the variables analyzed for all estimated models; ii) there is a very slow
speed of adjustment towards the long run equilibrium; iii) there is evidence of exchange
rate passthrough to inflation mainly in the long run, but not as strong as before; iv) there
is no evidence of exchange rate overshooting; v) international reserve accumulation can be
considered a partial explanation for the evidence of no exchange rate overshooting.

JEL Classification: C22; F14; F17.