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Monetary Transmission in an Emerging Targeter: The Case of Brazil

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  • A. R. Pagan
  • Mr. Douglas Laxton
  • Mr. Luis Catão

Abstract

This paper lays out a structural model that incorporates key features of monetary transmission in typical emerging-market economies, including a bank-credit channel and the role of external debt accumulation on country risk premia and exchange rate dynamics. We use an SVAR representation of the model to study the monetary transmission in Brazil. We find that interest rate changes have swifter effects on output and inflation compared to advanced economies and that exchange rate dynamics plays a key role in this connection. Importantly, the response of inflation to monetary policy shocks has grown stronger and the output-inflation tradeoff improved since the introduction of inflation targeting.

Suggested Citation

  • A. R. Pagan & Mr. Douglas Laxton & Mr. Luis Catão, 2008. "Monetary Transmission in an Emerging Targeter: The Case of Brazil," IMF Working Papers 2008/191, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2008/191
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    Cited by:

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    2. Philip Arestis & Fernando Ferrari-Filho & Luiz Fernando de Paula, 2011. "Inflation targeting in Brazil," International Review of Applied Economics, Taylor & Francis Journals, vol. 25(2), pages 127-148.
    3. Kapur, Muneesh & Behera, Harendra, 2012. "Monetary Transmission Mechanism in India: A Quarterly Model," MPRA Paper 70631, University Library of Munich, Germany.
    4. Luis A.V. Catão & Adrian Pagan, 2011. "The Credit Channel and Monetary Transmission in Brazil and Chile: A Structured VAR Approach," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.),Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 5, pages 105-144, Central Bank of Chile.
    5. Annabelle Mourougane, 2011. "Refining Macroeconomic Policies to Sustain Growth in Brazil," OECD Economics Department Working Papers 899, OECD Publishing.
    6. Montes, Gabriel Caldas, 2013. "Credibility and monetary transmission channels under inflation targeting: An econometric analysis from a developing country," Economic Modelling, Elsevier, vol. 30(C), pages 670-684.
    7. Marco A. F. H. Cavalcanti & Luciano Vereda, 2011. "Propriedades Dinâmicas de Um Modelo DSGE Com Parametrizações Alternativas Para o Brasil," Discussion Papers 1588, Instituto de Pesquisa Econômica Aplicada - IPEA.
    8. Luciano Vereda & Marco A. F. H. Cavalcanti, 2010. "Modelo Dinâmico Estocástico de Equilíbrio Geral (DSGE) Para a Economia Brasileira: Versão 1," Discussion Papers 1479, Instituto de Pesquisa Econômica Aplicada - IPEA.
    9. Kapur, Muneesh, 2018. "Macroeconomic Policies and Transmission Dynamics in India," MPRA Paper 88566, University Library of Munich, Germany.
    10. Viladegut, Hugo & Cabello, Miguel, 2014. "El canal de crédito en el Perú: Una aproximación SVAR," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 27, pages 51-66.
    11. Minella, André & Souza-Sobrinho, Nelson F., 2013. "Monetary policy channels in Brazil through the lens of a semi-structural model," Economic Modelling, Elsevier, vol. 30(C), pages 405-419.
    12. Gabriel Caldas Montes & José Américo Pereira Antunes & Alexei Ferreira Araújo, 2021. "Effects of monetary policy and credibility on financial intermediation: evidence from the Brazilian banking sector," Empirical Economics, Springer, vol. 60(3), pages 1191-1219, March.
    13. Rajendra Narayan Paramanik & Bandi Kamaiah, 2014. "A Structural Vector Autoregression Model for Monetary Policy Analysis in India," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 8(4), pages 401-429, November.
    14. Oscar Parkyn & Tugrul Vehbi, 2014. "The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints," The Economic Record, The Economic Society of Australia, vol. 90(290), pages 345-364, September.
    15. Mr. Alex Segura-Ubiergo, 2012. "The Puzzle of Brazil's High Interest Rates," IMF Working Papers 2012/062, International Monetary Fund.
    16. Mustafa Kilinc & Cengiz Tunc, 2014. "Identification of Monetary Policy Shocks in Turkey: A Structural VAR Approach," Working Papers 1423, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    17. Francisco J. S. Rocha & Marcos R. V. Magalhaes & Ã tila Amaral Brilhante, 2022. "A BVAR Analysis on Channels of Monetary Policy Transmission in Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 14(3), pages 1-19, February.
    18. Gabriel Caldas Montes & Gabriel Gonçalves do Vale Monteiro, 2014. "Monetary policy, prudential regulation and investment," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 41(6), pages 881-906, November.
    19. Montes, Gabriel Caldas & Peixoto, Gabriel Barros Tavares, 2014. "Risk-taking channel, bank lending channel and the “paradox of credibility”," Economic Modelling, Elsevier, vol. 39(C), pages 82-94.
    20. Gabriel Caldas Montes & Caroline Cabral Machado, 2013. "Credibility and the credit channel transmission of monetary policy theoretical model and econometric analysis for Brazil," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(4), pages 469-492, August.

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