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Monetary Policy, Inflation and the Level of Economic Activity in Brasil After the Real Plan: Stylized Facts From SVAR Models

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  • Brisne J. V. Céspedes
  • Elcyon C. R. Lima
  • Alexis Maka

Abstract

This article investigates the stochastic and dynamic relationship of a group ofBrazilian macroeconomic variables (price and industrial production indexes, nominalexchange rate, short and medium-run nominal interest rates) for the period after theReal Plan (1996-2004). We adopt, as has become usual in the literature, severalSVAR (structural VAR) models to uncover stylized facts for the short-run impacts ofthe identified exogenous sources of fluctuations of this selected set of variables.A distinctive feature of this article is the employment of Directed Acyclic Graphs(DAG) to obtain the contemporaneous causal order of the variables used to identifythe SVAR models. Another distinguishing characteristic is the careful attention paidto monetary policy developments after the Real Plan when splitting our sample intwo subsamples (1996/07-1998/08 and 1999/03-2004/12).The main results are: a) in response to a positive short run interest rate innovation,during the 1999-2004 subperiod, the output and the price level decrease?however, theoutput response is faster and the price level responds with a lag of near four months; b)for the 1996-1998 subperiod, the most likely effect of a positive short run interest rateinnovation is the reduction of the price level (also with a four months lag), even thoughthere is a large uncertainty in this response, and the reduction of output; c)short runinterest rate innovations are one of the most important sources of temporary fluctuationsin the level of economic activity for both subsamples; and d) exogenous shocks to theexchange rate and to the medium term interest rate are for the 1999-2004 period, themost important sources of inflation rate fluctuation.

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  • Brisne J. V. Céspedes & Elcyon C. R. Lima & Alexis Maka, 2005. "Monetary Policy, Inflation and the Level of Economic Activity in Brasil After the Real Plan: Stylized Facts From SVAR Models," Discussion Papers 1101, Instituto de Pesquisa Econômica Aplicada - IPEA.
  • Handle: RePEc:ipe:ipetds:1101
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    Cited by:

    1. Fernando José Pérez Forero, 2015. "Comparing the Transmission of Monetary Policy Shocks in Latin America: A Hierachical Panel VAR," Premio de Banca Central Rodrigo Gómez / Central Banking Award "Rodrigo Gómez", Centro de Estudios Monetarios Latinoamericanos, CEMLA, number prg2015eng, enero-jun.
    2. Tomas Havranek & Marek Rusnak, 2013. "Transmission Lags of Monetary Policy: A Meta-Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 9(4), pages 39-76, December.
    3. Glocker, Christian & Towbin, Pascal, 2015. "Reserve requirements as a macroprudential instrument – Empirical evidence from Brazil," Journal of Macroeconomics, Elsevier, vol. 44(C), pages 158-176.
    4. 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.
    5. Elcyon C. R. Lima & Alexis Maka & Mário Mendonça, 2007. "Monetary Policy Regimes in Brazil," Discussion Papers 1285, Instituto de Pesquisa Econômica Aplicada - IPEA.
    6. Igor Ézio Maciel Silva & Nelson Leitão Paes & Jocildo Fernandes Bezerra, 2016. "Evidences Of Incomplete Interest Rate Pass-Through, Directed Credit And Cost Channel Of Monetary Policy In Brazil," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 036, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    7. 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.
    8. Brisne J. V. Céspedes & Elcyon C. R. Lima & Alexis Maka & Mário J. C. Mendonça, 2005. "Measuring Monetary Policy Stance in Brazil," Discussion Papers 1128, Instituto de Pesquisa Econômica Aplicada - IPEA.
    9. Cardoso de Mendonça, Mário Jorge, 2013. "O Crédito Imobiliário no Brasil e sua Relação com a Política Monetária," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 67(4), November.
    10. repec:sbe:breart:v:31:y:2011:i:1:a:3410 is not listed on IDEAS
    11. repec:fgv:epgrbe:v:67:n:4:a:4 is not listed on IDEAS

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