EXCHANGE RATE VOLATILITY, EXPECTATIONS, AND INFLATION: AN ANALYSIS FOR THE BRAZILIAN ECONOMY FROM 2001-2017 USING THE SVAR APPROACH

ABSTRACT

This paper aims to empirically analyze the relationship between exchange rate volatility and inflation expectations using the structural vector autoregressive (SVAR) approach. From the Keynesian theory of pricing and inflation, it hypothesizes that exchange rate volatility, amplified by trade expansion and financial liberalization, affects inflation expectations through productions costs. In both models, the results confirm the hypothesis, for the exchange rate variation exerted certain influence on the inflation expectations and, consequently, its trajectory, especially in periods of devaluation.

KEYWORDS:
inflation expectations; exchange rate; exchange rate volatility