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Monetary Transmission in an Emerging Targeter: The Case of Brazil

Author/Editor: Catão, Luis | Laxton, Douglas | Pagan, A. R.
Authorized for Distribution: August 1, 2008
Electronic Access: Free Full Text (PDF file size is 466KB)
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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.
 
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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
 
English  
    Published:   August 1, 2008        
            Format:   Paper
    Stock No:   WPIEA2008191   Pages:   42
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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