Monetary Transmission in an Emerging Targeter: The Case of Brazil

Author/Editor: Catão, Luis ; Laxton, Douglas ; Pagan, A. R.
Publication Date: August 01, 2008
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 08/191
Subject(s): Brazil | Monetary policy | Inflation targeting | Emerging markets | Bank credit | Interest rates | Developed countries | Economic models | Disinflation

Author's Keyword(s): Monetary Policy | Inflation | Credit Channel | SVAR | Brazil
Publication Date: August 01, 2008
Format: Paper
Stock No: WPIEA2008191 Pages: 42
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