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The Impact of unexpected changes in the benchmark rate on the Brazilian stock market

  • Fernando Nascimento de Oliveira

    (IBMEC-RJ)

  • Alexandre Romaguera Rodrigues da Costa

    (JAR Consultoria)

Registered author(s):

    To analyze empirically the impact of unexpected changes in the basic interest rate (SELIC rate) on the Brazilian stock market between January 2003 and May 2012, we constructed a surprise measure based on the market consensus. Our sample of events is composed of 88 meetings of the Brazilian Central Bank’s Monetary Policy Committee (COPOM). There were unexpected changes in the interest rate at 32 of these meetings. The results show that for each 1% unexpected increase in the SELIC rate, the stock market index (IBOVESPA) decreased 3.28%

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    File URL: http://www.bbronline.com.br/public/edicoes/10_3/artigos/oy8dy9ojrr1102013110554.pdf
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    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 10 (2013)
    Issue (Month): 3 (July)
    Pages: 53-81

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    Handle: RePEc:bbz:fcpbbr:v:10:y:2013:i:3:p:53-81
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    1. V. Vance Roley & Gordon H. Sellon, Jr., 1995. "Monetary policy actions and long-term interest rates," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 73-89.
    2. John Y. Campbell, 1990. "A Variance Decomposition for Stock Returns," NBER Working Papers 3246, National Bureau of Economic Research, Inc.
    3. Roberto Rigobon & Brian P. Sack, 2002. "The Impact of Monetary Policy on Asset Prices," NBER Working Papers 8794, National Bureau of Economic Research, Inc.
    4. Refet Gürkaynak & Brian Sack, 2005. "Do Actions Speak Louder Than Words?The Response of Asset Prices to Monetary Policy Actions and Statements," Computing in Economics and Finance 2005 323, Society for Computational Economics.
    5. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    6. Willem Thorbecke, 1995. "On Stock Market Returns and Monetary Policy," Economics Working Paper Archive wp_139, Levy Economics Institute.
    7. Thorbecke, Willem & Alami, Tarik, 1994. "The effect of changes in the federal funds rate target on stock prices in the 1970s," Journal of Economics and Business, Elsevier, vol. 46(1), pages 13-19, February.
    8. John H. Boyd & Ravi Jagannathan & Jian Hu, 2001. "The Stock Market's Reaction to Unemployment News: Why Bad News is Usually Good for Stocks," NBER Working Papers 8092, National Bureau of Economic Research, Inc.
    9. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
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