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Monetary Channels in Brazil through the Lens of a Semi-Structural Model

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  • André Minella
  • Nelson F. Souza-Sobrinho

Abstract

We develop and estimate a medium-size, semi-structural model for Brazil's economy during the inflation targeting period. The model captures key features of the economy, and allows us to investigate the transmission mechanisms of monetary policy. We decompose the monetary channels into household interest rate, firm interest rate, and exchange rate channels. We find that the household interest rate channel plays the most important role in explaining output dynamics after a monetary policy shock. In the case of inflation, however, both the household interest rate and the exchange rate channels are the main transmission mechanisms. Furthermore, using a proxy for an expectation channel, we also find that this channel is key in the transmission of monetary policy to inflation.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps181.pdf
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Bibliographic Info

Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 181.

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Date of creation: Apr 2009
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Handle: RePEc:bcb:wpaper:181

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Web page: http://www.bcb.gov.br/?english

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  1. Souza-Sobrinho, Nelson, 2003. "Uma Avaliação do Canal de Crédito no Brasil
    [An Assessment of the Credit Channel in Brazil]
    ," MPRA Paper 5160, University Library of Munich, Germany.
  2. Alessandro Rebucci & Marco A Espinosa-Vega, 2003. "Retail Bank Interest Rate Pass-Through," IMF Working Papers 03/112, International Monetary Fund.
  3. Nelson Souza-Sobrinho, 2010. "Macroeconomics of bank interest spreads: evidence from Brazil," Annals of Finance, Springer, vol. 6(1), pages 1-32, January.
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Cited by:
  1. Sánchez-Fung, José R., 2011. "Estimating monetary policy reaction functions for emerging market economies: The case of Brazil," Economic Modelling, Elsevier, vol. 28(4), pages 1730-1738, July.
  2. Carvalho, Fabia A. & Minella, André, 2012. "Survey forecasts in Brazil: A prismatic assessment of epidemiology, performance, and determinants," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1371-1391.
  3. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
  4. Gabriel Garber & Eduardo A. Haddad, 2012. "Target Fitting and Robustness Analysis in CGE Models," Working Papers, Department of Economics 2012_14, University of São Paulo (FEA-USP).
  5. Muhammad Naveed Tahir, 2012. "Relative Importance of Monetary Transmission Channels in Inflation Targeting Emerging Economies," EcoMod2012 4092, EcoMod.

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