Impacts of exchange rate non-linearity on Brazilian foreign trade

  • 103 Accesses


The possibility of exchange rate appreciations and depreciations affecting macroeconomic variables has recently been rising in popularity in empirical international economics. Indeed, several theoretical studies have pointed out that exporters may behave diversely when facing different directions and sizes of exchange rate fluctuations. The empirical literature for the Brazilian case on this issue is still scarce. Thus, the aim of this paper is to investigate the effects of exchange rate non-linearity on the flow of international trade of disaggregated Brazilian exports and imports for five major trading partners. For this purpose, the non-linear autoregressive distributed lag (NARDL) methodology is applied to traditional trade equations. The results reveal, among other things, that exchange rate non-linearity shows a better response to the models (in terms of statistical significance and expected signs of estimated elasticities) regarding Brazilian imports. Therefore, a conclusion concerning the exchange rate policy is that an incentive for exports resulting from an over-depreciated exchange rate may actually have a greater impact on imports by discouraging them, which is an outcome with possible policy implications. Moreover, the results have remarkable applications since exchange rate appreciations did not seem to decrease exports by a significant amount, as was argued to be the case after the period of overvaluated currency in the 2000s.

This is a preview of subscription content, log in to check access.

Access options

Buy single article

Instant unlimited access to the full article PDF.

US$ 39.95

Price includes VAT for USA

Subscribe to journal

Immediate online access to all issues from 2019. Subscription will auto renew annually.

US$ 99

This is the net price. Taxes to be calculated in checkout.


  1. 1.

    Ministry of Development, Industry and Foreign Trade.

  2. 2.

    Nomenclatura Comum do Mercosul (Common Nomenclature of Mercosul), which is based on the Harmonized System (HS).

  3. 3.

    Many works have broadly surveyed this literature. For the early trade models, see Cheng (1959), Leamer and Stern (1970) and Taplin (1967).

  4. 4.

    See Marston (1990), Dornbusch (1987) and Krugman (1987).

  5. 5.

    See Baldwin (1990).

  6. 6.

    In this case, one assumes that the country does not influence international prices. Therefore, the price elasticity of the foreign demand for domestic goods is taken as infinite, and only the price elasticity of the supply of exports is investigated. Thus, a rise in the supply of exports cannot affect their prices and every demand side factor is said to be captured by variations in the prices.

  7. 7.

    A structural supply equation assigns the exports as a function of relative prices and the gap between actual and full capacities.

  8. 8.

    The chapters are the two-digit disaggregation of the Harmonized System. There are 97 chapters listed. See section 3.2.

  9. 9.

    PSS is the usual abbreviation used in the literature for the work of Pesaran et al. (2001), which we also call Pesaran et al. (2001).

  10. 10.

    See also Narayan (2005).

  11. 11.

    Source: Own calculation based on AliceWeb – MDIC.

  12. 12.

    Ministry of Industry, Foreign Trade and Services.

  13. 13.

    Method Census X12.

  14. 14.

    For Argentina, the data are the EMI (Estimador Mensual Industrial). For China, the quarterly GDP series was transformed into a monthly series, performed by the cubic spline interpolation.

  15. 15.

    The following HS chapters of exports to China were cut and had less than 201 observations: 02, 15, 47 and 88. This feature in the China trading data was expected because China entered the WTO only in 2001. The growth in some of its trading flows is still a recent episode.

  16. 16.

    The complete results of the tests are omitted and can be obtained from the authors. Tests based on Dickey and Fuller (1979), Ng and Perron (2001) and Lee and Strazicich (2003).

  17. 17.

    The results for the diagnostic tests are not shown in the text and are available in Appendix B, panel C.

  18. 18.

    All our analyses are based on the cointegrating equations. The others were thus discarded and are available from the authors.

  19. 19.

    As some chapters have long names, we refer to them in a simplified manner. Their full descriptions are displayed in Appendix A.

  20. 20.

    A total of 213 out of 312 equations and 42 out of 48 equations.


  1. Bahmani-Oskooee M, Hegerty SW (2007) Exchange rate volatility and trade flows: A review article. J Econ Stud 34:211–255

  2. Bahmani-Oskooee M, Kara O (2003) Relative responsiveness of trade flows to a change in prices and exchange rate. Int Rev Appl Econ 17(3):293–308

  3. Baldwin R (1988) Hysteresis in import prices: the beachhead effect. Am Econ Rev 78(4):773–785

  4. Baldwin R (1990) Hysteresis in trade. Empir Econ 15(2):127–142

  5. Baldwin R, Krugman PR (1989) Persistent trade effects of large exchange rate shocks. Q J Econ 104:635–654

  6. Banerjee A, Dolado JJ, Mestre R (1998) Error-Correction Mechanism Tests for Cointegration in a Single-Equation Framework. J Time Ser Anal 19(3):263–283

  7. Belke A, Gӧecke M (1999) A Simple Model of Hysteresis in Employment under Exchange Rate Uncertainty. Scottish Journal of Political Economy 46(3):260–286

  8. Belke A, Gӧecke M (2001) Exchange rate uncertainty and play nonlinearity in aggregate unemployment. Int Adv Econ Res 7(1):38–50

  9. Belke A, Gӧecke M (2005) Real options effects on unemployment: does exchange rate uncertainty matter for aggregation? Ger Econ Rev 6(2):185–203

  10. Belke A, Gӧecke M, Guenther M (2013) Exchange Rate Bands of Inaction and Play-Hysteresis in German Exports - Sectoral Evidence for Some OECD Destinations. Metroeconomica 64(1):152–179

  11. Belke A, Gӧecke M, Werner L (2015a) Exchange Rate Volatility and other Determinants of Hysteresis in Exports - Empirical Evidence for the Euro Area. Review of Economic Analysis 7(1):24–53

  12. Belke A, Oeking A, Setzer R (2015b) Domestic Demand, Capacity Constraints and Export Dynamics: Empirical Evidence for Vulnerable Euro Area Countries. Econ Model 48:315–325

  13. Belke A, Wagemester J (2017) Export Hysteresis, Capacity Constraints, and Uncertainty: a Smooth Transition Analysis for Euro Area Member Countries. CESifo Economic Studies 63(3):270–294

  14. Bresser-Pereira LC (2008) The Dutch disease and its neutralization: a Ricardian approach. Brazilian Journal of Political Economy 28(1):47–71

  15. Calvo GA, Reinhart CM (2002) Fear of Floating. Q J Econ 117(2):379–408

  16. Cheng HS (1959) Statistical Estimates of Elasticities and Propensities in International Trade - A Survey of Published Studies. IMF Staff Pap 7:107–158

  17. De Prince D, Kannebley Junior S (2013) Strong Hysteresis in Brazilian Imports: A Panel Cointegration Approach. J Econ Stud 40(4):528–548

  18. Dickey DA, Fuller WA (1979) Distribution of estimators for autoregressive time series with a unit root. J Am Stat Assoc 74(366):427–431

  19. Dixit AK (1989) Hysteresis, import penetration, and exchange rate pass-through. Q J Econ 104(2):205–228

  20. Dornbusch R (1987) Exchange rate and prices. Am Econ Rev 77(1):93–106

  21. Enders W, Dibooglu S (2001) Long-Rum Purchasing Power Parity with asymmetric adjustment. South Econ J 68(2):433–445

  22. Enders W, Granger CWJ (1998) Unit-Root and Asymmetric Adjustment With an Example Using the Term Structure of Interest Rates. J Bus Econ Stat 16(3):304–311

  23. Esteves P S, Rua A (2013) Is There a Role for Domestic Demand Pressure on Export Performance? ECB Working Paper Series No. 1594, Frankfurt/Main

  24. Goldstein M, Khan MS (1985) Income and price effects in foreign trade. In: Jones RW, Kenen PB (eds) Handbook of International Economics II. North Holland, Amsterdam

  25. Kannebly S Jr (2008) Tests for the hysteresis hypothesis in Brazilian industrialized exports: a threshold cointegration analysis. Econ Model 25(2):171–190

  26. Krugman PR (1987) Pricing to Market When the Exchange Rate Changes. In: Arndt SW, Richardson JD (eds) Real-Financial Linkages Among Open Economies. MIT Press, Cambridge, MA

  27. Krugman PR (1989) Exchange rate-instability. The MIT Press, Cambridge

  28. Leamer EE, Stern RM (1970) Quantitative International Economics. Transaction Publishers, Piscataway

  29. Lee J, Strazicich M (2003) Minimum Lagrange Multiplier Unit Root Test with Two Structural Breaks. Rev Econ Stat 85:1082–1089

  30. Lu YC, Chang T, Yu CP (2011) Long-Run Purchasing Power Parity With Asymetric Adjustment: Evidence From Mainland China and Taiwan. Romanian Journal of Economic Forecasting 3:59–70

  31. Magee SP (1975) Prices, income and foreign trade: a survey of recent economic studies. In: Kenen PB (ed) International trade and finance: frontiers for research. Cambridge University Press, Cambridge

  32. Marston R (1990) Pricing to market in Japanese manufacturing. J Int Econ 29:217–236

  33. Narayan PK (2005) The saving and investment nexus for China: evidence from cointegration test. Appl Econ 37(17):1979–1990

  34. Ng S, Perron P (2001) Lag length selection and the construction of unit root tests with good size and power. Econometrica 69(6):1519–1554

  35. Nieh C-C, Wang Y-S (2005) ARDL Approach to the Exchange Rate Overshooting in Taiwan. Rev Quant Finan Acc 25(1):55–71

  36. Pesaran MH, Shin Y (1999) An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In: Strom S (ed) Econometrics and Economic Theory in the 20th Century. The Ragnar Frisch Centennial Symposium, Cambridge

  37. Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econ 16:289–326

  38. Rao BB, Singh R (2007) Estimating export equations. Appl Econ Lett 14:799–802

  39. Schettini B P, Gouvêa R R (2011) Estimativas econométricas para as importações agregadas com dados das contas nacionais trimestrais - 1996-2010. Texto para Discussão 1683. IPEA, Brasília

  40. Schettini BP, Squeff GC, Gouvêa RR (2012) Estimativas da função exportações brasileiras agregadas com dados das contas nacionais trimestrais - 1995-2009. Economia Aplicada 16(1):167–196

  41. Shin Y, Yu B, Greenwood-Nimmo M J (2014) Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In: Horrace W C, Sickles R C (eds) Festschrift in Honor of Peter Schmidt: Econometric Methods and Application. pp 281–314

  42. Taplin GB (1967) Models of World Trade. IMF Staff Pap 14:433–453

  43. Verheyen F (2013) Exchange rate nonlinearities in EMU exports to the US. Econ Model 32:66–76

Download references

Author information

Correspondence to Lucas dos Santos Lourenço.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic supplementary material


(PDF 4673 kb)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Lourenço, L.S., Vasconcelos, C.R.F. Impacts of exchange rate non-linearity on Brazilian foreign trade. Int Econ Econ Policy 16, 679–699 (2019).

Download citation


  • Exchange rate
  • Non-linearity
  • Cointegration
  • Exports
  • Imports

JEL codes

  • F14
  • F49
  • C32