Credit shocks and monetary policy in Brazil: A structural FAVAR approach
AbstractThis paper investigates the implications of the credit channel of the monetary policy transmission mechanism in the case of Brazil, using a structural FAVAR (SFAVAR) approach. The term structural comes from the estimation strategy, which generates factors that have a clear economic interpretation. The results show that unexpected shocks in the proxies for the external nance premium and the bank balance sheetchannel produce large and persistent uctuations in in ation and economic activity accounting for more than 30% of the error forecast variance of the latter in a three-year horizon. The central bank seems to incorporate developments in credit markets especially variations in credit spreads into its reaction function, as impulse-response exercises show the Selic rate is declining in response to wider credit spreads and acontraction in the volume of new loans. Counterfactual simulations also demonstrate that the credit channel ampli ed the economic contraction in Brazil during the acute phase of the global nancial crisis in the last quarter of 2008, thus gave an important impulse to the recovery period that followed.
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Bibliographic InfoPaper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 358.
Date of creation: 05 May 2014
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-05-17 (All new papers)
- NEP-BAN-2014-05-17 (Banking)
- NEP-CBA-2014-05-17 (Central Banking)
- NEP-MAC-2014-05-17 (Macroeconomics)
- NEP-MON-2014-05-17 (Monetary Economics)
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