Larger and Faster Exchange Rate Pass Through When the Currency Depreciates : A Local Projections Approach for the Case of Brazil

Exchange rate pass through (ERPT) has been a major determinant of domestic inflation in Brazil after the adoption of the floating exchange rate regime in 1999. This paper investigates whether there is asymmetry in the magnitude and speed of adjustment of the inflation rate when there is an nominal exchange rate shock, comparing moments of currency depreciation and appreciation. We use the Local Projections method to analyze this asymmetry in ERPT for the Brazilian case from January 2000 to January 2020. Our main finding suggests that ERPT is significantly higher and faster when the currency depreciates compared to when it appreciates. The results were robust to other specifications and different variables used