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Comparing the Transmission of Monetary Policy Shocks in Latin America: A Hierarchical Panel VAR

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  • Pérez, Fernando

    (Banco Central de Reserva del Perú)

Abstract

This paper assesses and compares the effects of monetary policy shocks across Latin American countries that put in practice the Inflation Targeting scheme (Brazil, Chile, Colombia, Mexico and Peru). An estimated Hierarchical Panel VAR allows us to use the data efficiently and, at the same time, exploit the heterogeneity across countries. Monetary shocks are identified through an agnostic procedure that imposes zero and sign restrictions. We find a real short run effect of monetary policy on output (with a peak around 12-15 months); a significant medium run response of prices with the absence of the so-called price puzzle and a hump-shaped response of the exchange rate, i.e. weak evidence of the so-called delayed overshooting puzzle phenomenon. Nevertheless, we find some degree of heterogeneity on the impact and propagation of monetary shocks across countries. In particular, we find stronger effects on output and prices in Brazil and Peru relative to Chile, Colombia and Mexico and a stronger reaction of the exchange rate in Brazil, Chile and Colombia relative to Mexico and Peru. Finally, we present a weighted-averaged impulse response after a monetary shock, which is representative for the region. *Note: Winning article in the 2015 Rodrigo Gómez Central Bank Award, organized by the Center for Latin American Monetary Studies (CEMLA). The article will be published by this institution.

Suggested Citation

  • Pérez, Fernando, 2015. "Comparing the Transmission of Monetary Policy Shocks in Latin America: A Hierarchical Panel VAR," Working Papers 2015-015, Banco Central de Reserva del Perú.
  • Handle: RePEc:rbp:wpaper:2015-015
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    References listed on IDEAS

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    Cited by:

    1. Georgiadis, Georgios & Jančoková, Martina, 2017. "Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks," Working Paper Series 2082, European Central Bank.

    More about this item

    Keywords

    Panel Vector Autoregressions; Sign Restrictions; Bayesian Hierarchical models;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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