EXCHANGE RATE AND EXTERNAL ADJUSTMENT: AN INVESTIGATION WITH ARDL MODELS FOR THE BRICS EMERGING ECONOMIES

ABSTRACT The objective of this work is to investigate the role of the exchange rate (level, misalignment and volatility) for the external adjustment of the BRICS (1998 to 2015) using ARDL models. The results indicate a strong asymmetry regarding the role of the exchange rate in the long and short-term adjustment process. For the models estimated with exchange rate misalignment, it was statistically significant for all economies except India, while for the models using exchange rate volatility, only for Brazil there was significance for the short-term adjustment in both models. Finally, the highest speed of adjustment were found in the NARDL model.