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Nonlinearities and Price Puzzle in Brazil

  • Roberto Tatiwa Ferreira

    (Federal University of Ceará)

  • Ivan Castelar

    (Federal University of Ceará)

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.

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File URL: http://www.anpec.org.br/revista/vol9/vol9n1p47_62.pdf
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Article provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its journal Economia.

Volume (Year): 9 (2008)
Issue (Month): 1 ()
Pages: 47-62

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Handle: RePEc:anp:econom:v:9:y:2008:i:1:47-62
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  1. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the flow of funds," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
  2. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-62, April.
  3. Cysne, Rubens Penha, 2004. "Is There a Price Puzzle in Brazil? An Application of Bias-Corrected Bootstrap," Economics Working Papers (Ensaios Economicos da EPGE) 577, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  4. Eichenbaum, Martin, 1992. "'Interpreting the macroeconomic time series facts: The effects of monetary policy' : by Christopher Sims," European Economic Review, Elsevier, vol. 36(5), pages 1001-1011, June.
  5. Ben Bernanke, 1990. "The Federal Funds Rate and the Channels of Monetary Transnission," NBER Working Papers 3487, National Bureau of Economic Research, Inc.
  6. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
  7. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
  8. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  9. Cati, Regina Celia & Garcia, Marcio G P & Perron, Pierre, 1999. "Unit Roots in the Presence of Abrupt Governmental Interventions with an Application to Brazilian Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 27-56, Jan.-Feb..
  10. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  11. André Minella, 2001. "Monetary Policy and Inflation in Brazil (1975-2000): a VAR Estimation," Working Papers Series 33, Central Bank of Brazil, Research Department.
  12. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
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