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Usman, Ojonugwa
Elsalih, Osama Mohammed
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[Journal:] Economies [ISSN:] 2227-7099 [Volume:] 6 [Year:] 2018 [Issue:] 3 [Pages:] 1-13
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.
real exchange rate pass-through
unemployment rate
linear ARDL
nonlinear ARDL
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