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Quantitative easing and related capital flows into Brazil: Measuring its effects and transmission channels through a rigorous counterfactual evaluation

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  • Barroso, João Barata R.B.
  • da Silva, Luiz A. Pereira
  • Sales, Adriana Soares

Abstract

We show that unconventional monetary policy in the United States appears to influence capital inflows to Brazil and, through this channel, its overall economic outlook and financial stability. In particular, quantitative easing leads to capital inflows, exchange rate appreciation, stock market price increases, credit growth and expansion of domestic activity related to consumption. Such effects are significant when considering both parameter uncertainty and a new significance test for abnormal behavior. According to a new channel identification method proposed in the paper, capital inflow is the only domestic propagation channel that systematically accounts for the estimated effects across variables and samples. Results are robust across a wide range of policy counterfactuals, regime break assumptions, testing procedures and model specifications.

Suggested Citation

  • Barroso, João Barata R.B. & da Silva, Luiz A. Pereira & Sales, Adriana Soares, 2016. "Quantitative easing and related capital flows into Brazil: Measuring its effects and transmission channels through a rigorous counterfactual evaluation," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 102-122.
    • Handle: RePEc:eee:jimfin:v:67:y:2016:i:c:p:102-122
    DOI: 10.1016/j.jimonfin.2015.06.013
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    More about this item

    Keywords

    Unconventional monetary policy; Global spillovers; Quantitative easing; Capital flows; Emerging markets;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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