Exchange Rate Behavior in the BRICS

Abstract

This article aims to investigate the behavior of exchange rate in the BRICS countries, with an emphasis on exchange rate passthrough and exchange rate determination empirical models. By applying the ARDL Bounds Testing Approach Methodology, from January 2005 to December 2019. Our main results show that: i) there is a long run cointegration among the variables analyzed for all estimated models; ii) there is a very slow speed of adjustment towards the long run equilibrium; iii) there is evidence of exchange rate passthrough to inflation mainly in the long run, but not as strong as before; iv) there is no evidence of exchange rate overshooting; v) international reserve accumulation can be considered a partial explanation for the evidence of no exchange rate overshooting.