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The Credit Channel and Monetary Transmission in Brazil and Chile: A Structured VAR Approach

In: Monetary Policy under Financial Turbulence

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  • Luis A.V. Catão

    (International Monetary Fund)

  • Adrian Pagan

    (University of Technology, Sydney, and Queensland University of Technology)

Abstract

We use an expectation-augmented SVAR representation of an open economy New Keynesian model to study monetary transmission in Brazil and Chile. The underlying structural model incorporates key structural features of Emerging Market economies, notably the role of a bank-credit channel. We find that interest rate changes have swifter effects on output and inflation in both countries compared to advanced economies and that exchange rate dynamics plays an important role in monetary transmission, as currency movements are highly responsive to changes in in policy-controlled interest rates. We also find the typical size of credit shocks to have large effects on output and inflation in the two economies, being stronger in Chile where bank penetration is higher.

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Bibliographic Info

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This chapter was published in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.) Monetary Policy under Financial Turbulence, , chapter 05, pages 105-144, 2011.

This item is provided by Central Bank of Chile in its series Central Banking, Analysis, and Economic Policies Book Series with number v16c05pp105-144.

Handle: RePEc:chb:bcchsb:v16c05pp105-144

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References

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  1. A. R. Pagan & Douglas Laxton & Luis Catão, 2008. "Monetary Transmission in an Emerging Targeter," IMF Working Papers 08/191, International Monetary Fund.
  2. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2006. "Monetary Policy Under Inflation Targeting: An Introduction," Working Papers Central Bank of Chile 396, Central Bank of Chile.
  3. Marco Del Negro & Frank Schorfheide, 2009. "Inflation Dynamics in a Small Open Economy Model under Inflation Targeting: Some Evidence from Chile," Central Banking, Analysis, and Economic Policies Book Series, in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 13, pages 511-562 Central Bank of Chile.
  4. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 529-554, April.
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Citations

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Cited by:
  1. Kornél Kisgergely, 2012. "Is there a carry trade channel of monetary policy in emerging countries?," MNB Working Papers 2012/3, Magyar Nemzeti Bank (the central bank of Hungary).
  2. Carlos J. García & Pablo González M. & Antonio Moncado S., 2013. "Macroeconomic Forecasting in Chile: a Structural Bayesian Approach," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 24-63, April.
  3. Adrian Pagan & Don Harding, 2011. "Econometric Analysis and Prediction of Recurrent Events," CREATES Research Papers 2011-33, School of Economics and Management, University of Aarhus.

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