Using a DSGE Model to Assess the Macroeconomic Effects of Reserve Requirements in Brazil
AbstractThe goal of this paper is to present how a Dynamic General Equilibrium Model (DSGE) can be used by policy makers in the qualitative and quantitative evaluation of the macroeconomics impacts of two monetary policy instruments: (i) short term interest rate and (ii) reserve requirements ratio. In our model, this last instrument affects the leverage of banks that have to deal with agency problems in order to raise funds from depositors. We estimated a modified version of Gertler and Karadi (2011), incorporating a reserve requirement ratio, in order to answer two questions: (i) what is the impact of a transitory increase of 1% p.y. of the short term interest rate on macroeconomic variables like GDP, inflation and investment? (ii) what is the macroeconomic impact of a transitory increase of 10% in the reserve requirement ratio? We found that these two shocks have the same qualitative effects on the most of the macroeconomic variables, but that the impact of interest rate is much stronger.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 303.
Date of creation: Jan 2013
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Web page: http://www.bcb.gov.br/?english
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-DGE-2013-03-23 (Dynamic General Equilibrium)
- NEP-MAC-2013-03-23 (Macroeconomics)
- NEP-MON-2013-03-23 (Monetary Economics)
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