Although the literature about the impact of exchange-rate volatility is not as extensive as the
one available on exchange-rate pass-through, some authors highlight such relation. Whether the
impacts are significant or not remains controversial. However, CAPORALE and PITTIS (1995),
point out that
“Economic theory concerned with behavior under uncertainty suggests that agents´ decisions
are based upon the conditional distribution of the relevant random variables. In the presence of risk
aversion, not only the conditional mean but also the higher moments, in particular the conditional
variance, will play a role. (p. 397)”
The study of the effects of exchange rate volatility on inflation becomes important since we
must verify whether that volatility should be a worry for the Central Bank’s actions when monetary