Pass-Through Cambial no Brasil

Abstract

This research has the objective of analyzing the changes in domestic prices due to exchange rate variations in Brazil since the adoption of the Real currency, between 1995 and 2018. It is intended to seek evidence of the functioning of its different mechanisms by decomposing the effects and behavior of the exchange rate pass-through (ERPT). For this, an Input-Output Analysis (IOA), based on a price model, attempts to investigate the cost-push pressure exerted on prices to the product and to the final consumer by exchange variations, considering different effects in the production chain and sectoral breakdown. In addition, in an analogous and mutually complementary way, an Vector Autoregression (VAR) approach that incorporates a price distribution chain is used to evaluate the exchange rate pass-through to domestic prices in an effective and aggregate way since the introduction of the floating exchange rate regime. The results suggest that changes in the structure of intermediate consumption in the Brazilian economy may be causing a higher cost-push pressure on domestic prices in recent years. In addition, the sectors with the highest impact ratio are revealed. In the case of the VAR approach, a greater lag was observed in the pass-through as prices approached the household final consumption characterization. However, a further relevant feature is the drastic reduction of the magnitude of ERPT along the distribution chain, whose comparison in absolute and relative terms with AIP results shows a lower pass-through, reflecting an inhibition of cost pressure. This corroborated the hypothesis that the low and stable inflation environment achieved in Brazil should be reducing the firms’ pricing power.