Strong hysteresis in Brazilian imports: A panel cointegration approach

Abstract

Purpose: The purpose of this paper is to investigate the hysteresis hypothesis for the price and quantity of Brazilian imports in recent years. Design/methodology/approach: The empirical measure of strong macro hysteresis, as developed by Piscitelli et al., was incorporated into import demand and pass-through panel cointegration equations. Findings: The results show that the number of sectors that do not reject hysteresis is larger for the import price than for the demand for imported goods. The evidence supports Dixit's idea that the presence of hysteresis should diminish the degree of pass-through. Correcting for hysteresis makes quantity and price of imports more sensitive to exchange rate variations. Originality/value: This paper contributes to the literature by introducing Piscitelli et al.'s measure to test the hysteresis hypothesis in import prices and quantity.