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Impact of international monetary policy in Uruguay: a FAVAR approach

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  • Elizabeth Bucacos

    (Banco Central del Uruguay)

Abstract

This study analyzes the Uruguayan economy’s vulnerability to foreign monetary policy in the last twenty years. The usual way of assessing monetary policy transmission effects - such as panel data analysis, correlation analysis and even case studies - have not offered much statistically significant evidence for Uruguayan economic growth. However, being a small open dollarized economy with a relatively less sophisticated asset market, it seems plausible that Uruguay may suffer from international monetary policy shocks. The challenge, then, is to unveil the channels through which those monetary shocks finally affect relevant Uruguayan variables. In this paper, factor augmented vector autoregressive (FAVAR) models are used in two stages. In the first stage, the impact of foreign monetary policy is assessed on commodity prices, foreign output, and regional output. In the second one, the effects on real exchange rate, domestic assets (as housing prices) and on domestic output are analyzed. Este estudio analiza la vulnerabilidad de la economía uruguaya a los shocks de política monetaria externos en los últimos veinte años. La forma habitual de analizar los efectos de la transmisión de los shocks de política monetaria – tales como análisis de datos de panel, análisis de correlación e incluso estudio de casos – no han ofrecido mucha evidencia estadísticamente significativa con respecto a los efectos sobre el crecimiento económico en Uruguay. Sin embargo, siendo una pequeña economía abierta dolarizada con un mercado de activos relativamente poco sofisticado, parece razonable que Uruguay sufra los choques de política monetaria internacional. Entonces, el desafío es revelar los canales a través de los cuales esos choques finalmente afectan las variables económicas uruguayas relevantes. En este documento se utilizan modelos de factores aumentados autorregresivos (FAVAR) en dos etapas. Primero, se establece el impacto de la política monetaria externa sobre precios de commodites, producto externo y producto regional. En una segunda etapa, se analizan los efectos sobre el tipo de cambio real, activos domésticos (como el precio de la vivienda) y el producto doméstico.

Suggested Citation

  • Elizabeth Bucacos, 2015. "Impact of international monetary policy in Uruguay: a FAVAR approach," Documentos de trabajo 2015003, Banco Central del Uruguay.
  • Handle: RePEc:bku:doctra:2015003
    as

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    References listed on IDEAS

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    Cited by:

    1. Bucacos, Elizabeth, 2018. "Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach," IDB Publications (Working Papers) 8275, Inter-American Development Bank.
    2. Diego Labat & Gerardo Licandro, 2021. "Towards a quality currency," Documentos de trabajo 2021005, Banco Central del Uruguay.

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    More about this item

    Keywords

    tapering; emerging economies; housing prices; Uruguay; reversión; restricción cuantitativa en EEUU; economías emergentes; precios de vivienda;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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