Monetary Policy Volatility Shocks in Brazil

This paper provides empirical evidence for the impact of changes in volatility of monetary policy in Brazil using a SVAR where the time-varying volatility of shocks directly affects the level of observed variables. Contrary to the literature, an increase in monetary policy volatility results in higher in inflation, combined with reduction in output. The qualitative differences of impulse responses functions, compared to the literature for developed economies, are explained using a calibrated small-scale DSGE model with habit persistence in consumption and stochastic volatility shocks in the Taylor rule. The DSGE model is capable of explaining the increase of inflation in the medium term after a monetary policy volatility shock.