Nonlinear Foreign Exchange Exposure: Evidence from Brazilian Companies

Abstract

The paper analyzes the exchange rate exposure of a sample of non-financial Brazilian companies from 1999 to 2009 using a smooth transition autoregressive model (STAR). The results confirm the importance of using nonlinear models to address companies’ exchange rate exposure. The results indicate that when compared to the linear model commonly used in literature, the nonlinear model leads to an increase in the number of firms exposed to exchange rate fluctuations, which allows a more accurate analysis of the impact of exchange rate fluctuations on the value of firms.