Repository Overview:

This repository contains an empirical analysis in R utilizing VAR (Vector autoregression) methodology to examine the exchange rate pass-through to the Brazilian Price Index from 2010 to 2022.

Contents:

i) The R Script with the VAR Application (including inference tests, impulse response functions and variance decomposition).

ii) A Rmarkdown file with the written article with the economic discussion of the model application.

Abstract:

The present article aims to empirically analyze the relationship between the exchange rate and the Brazilian price index, IPCA, from 2010 to 2022. For this purpose, a thorough review of the literature will be conducted, followed by the presentation of empirical results obtained through the Vector Autoregressive (VAR) methodology. Regarding the theoretical aspect, there are various approaches to the subject, both in the microeconomic and macroeconomic realms. However, this work will focus solely on the macroeconomic approach to highlight the impact of exchange rates on domestic prices in a more aggregate manner. As for the results, the estimation reveals a low degree of exchange rate pass-through to prices, as the analyzed period exhibits vectors that limit this type of dynamics.