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

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  • Luis Catão;
  • Adrian Pagan

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 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

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 579.

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Date of creation: May 2010
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Handle: RePEc:chb:bcchwp:579

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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. Adrian Pagan & Don Harding, 2011. "Econometric Analysis and Prediction of Recurrent Events," NCER Working Paper Series 75, National Centre for Econometric Research.
  3. 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.

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