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Testing the Effects of Real Exchange Rate Pass-Through to Unemployment in Brazil

Department of Economics, Eastern Mediterranean University, 99628 Famagusta, Turkish Republic of Northern Cyprus
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Economies 2018, 6(3), 49; https://doi.org/10.3390/economies6030049
Received: 28 June 2018 / Revised: 3 August 2018 / Accepted: 6 August 2018 / Published: 6 September 2018
(This article belongs to the Special Issue Exchange Rate Dynamics)
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. View Full-Text
Keywords: real exchange rate pass-through; unemployment rate; linear ARDL; nonlinear ARDL real exchange rate pass-through; unemployment rate; linear ARDL; nonlinear ARDL
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Usman, O.; Elsalih, O.M. Testing the Effects of Real Exchange Rate Pass-Through to Unemployment in Brazil. Economies 2018, 6, 49.

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