IDEAS home Printed from https://ideas.repec.org/a/eme/jespps/v42y2015i5p893-907.html
   My bibliography  Save this article

Monetary policy surprises and jumps in interest rates: evidence from Brazil

Author

Listed:
  • Roberto Meurer
  • André A.P. Santos
  • Douglas E. Turatti

Abstract

Purpose - – The purpose of this paper is to consider a monetary-jump model to measure the contribution of jumps to the total volatility of interest rates in the Brazilian interbank market and to assess the extent to which the central bank’s unanticipated monetary policy decisions are driving these jumps. Design/methodology/approach - – The authors use a sample of swap rates contracts with different maturities to estimate a mixture GARCH-jump model that disentangles two components of interest rate volatility: a GARCH-type specification that models conditional heteroskedasticity to account for the volatility during “normal” times and a Poisson process that models the occurrence of abrupt changes in interest rates. Findings - – The contribution of jumps to the total volatility is substantial, and monetary policy decisions partly explain the occurrence of those jumps. In particular, the authors find that the likelihood of a jump occurring during a meeting day of the Brazilian central bank’s monetary policy committee (COPOM) is higher in comparison to that of a non-meeting day. Research limitations/implications - – The occurrence of jumps in the term structure of interest rates raises the question of the transmission mechanism of the monetary policy through the asset price channel as well as the relation between jumps and economic fundamentals. Practical implications - – Communication between the central bank and the market will affect expectations and asset values. If the central bank’s decisions generate fewer jumps, then the variance of the interest rate-linked asset values will also be reduced. Originality/value - – The paper employs a new approach to assess monetary policy surprises to a set of Brazilian interest rate data and relates the occurrence of jumps to the macroeconomic environment.

Suggested Citation

  • Roberto Meurer & André A.P. Santos & Douglas E. Turatti, 2015. "Monetary policy surprises and jumps in interest rates: evidence from Brazil," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(5), pages 893-907, October.
  • Handle: RePEc:eme:jespps:v:42:y:2015:i:5:p:893-907
    DOI: 10.1108/JES-07-2014-0113
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JES-07-2014-0113/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://www.emerald.com/insight/content/doi/10.1108/JES-07-2014-0113/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers

    File URL: https://libkey.io/10.1108/JES-07-2014-0113?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:jespps:v:42:y:2015:i:5:p:893-907. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.