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

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Author Info

  • Luis Catão

    ()
    (IDB, IMF)

  • Adrian Pagan

    ()
    (UNSW, QUT)

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

Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 53.

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Length: 38 pages
Date of creation: 10 Mar 2010
Date of revision:
Handle: RePEc:qut:auncer:2009_66

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Web page: http://www.ncer.edu.au
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Keywords: Monetary Policy; Bank Credit; VAR; Brazil; Chile;

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References

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Citations

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Cited by:
  1. 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.
  2. 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).

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