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Nonlinearities and Price Puzzle in Brazil

Author

Listed:
  • Roberto Tatiwa Ferreira

    (Federal University of Ceará)

  • Ivan Castelar

    (Federal University of Ceará)

Abstract

What is called a price puzzle is a positive and persistent response of ination to a unit shock in the interest rate's innovation. Using a VAR to analyse monetary policy in Brazil, this paper comes to the conclusion that when nonlinearities in the data were considered, most of this e_ect vanishes. This is done _rstly by checking if the series are unit root processes or nonlinear trend stationary. After that a nonparametric co-trending analysis was applied. The test result favored a common nonlinear trend between ination and the interest rate, which seems to a_ect the system innovation analysis, inducing most of the price puzzle e_ect.

Suggested Citation

  • Roberto Tatiwa Ferreira & Ivan Castelar, 2008. "Nonlinearities and Price Puzzle in Brazil," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 9(1), pages 47-62.
  • Handle: RePEc:anp:econom:v:9:y:2008:i:1:47-62
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Monetary Policy; Nonlinearities; Nonlinear Trend; Co-Trending; Common Treds; Price Puzzle;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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