Normalization of Global Financial Conditions: The Implications for Brazil

September 3, 2015

Preview Citation

Format: Chicago

Troy D Matheson. Normalization of Global Financial Conditions: The Implications for Brazil, (USA: International Monetary Fund, 2015) accessed September 18, 2024

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

Global financial conditions are poised to tighten further as the global recovery proceeds. While monetary policy normalization should be a healthy global development as growth continues to recover in advanced economies, financial spillovers seen during the taper episode—which started with the announcement in May 2013 of possible tapering of U.S. asset purchases—hint at potential challenges for Brazil. The Fed’s communications related to normalization have improved significantly since the taper episode and, at present, a rise in Fed Funds rate in 2015 is widely anticipated by markets—arguably the most widely anticipated tightening of monetary policy in history. While Brazil could benefit from tighter global financial conditions associated with improved global prospects, bouts of heightened uncertainty about the future course of monetary policy cannot be ruled out. Thus, the correct diagnosis of the underlying reasons behind tighter global financial conditions remains crucially important for Brazil. Adverse spillovers can be mitigated by strengthening policy frameworks and fundamentals.

Subject: Central bank policy rate, Exchange rates, Financial institutions, Financial services, Foreign exchange, Sovereign bonds, Yield curve

Keywords: Asset, Asset purchase, Bond yield, Central bank policy rate, Economic news, Exchange rates, Global, Interest rates, Monetary policy normalization, Monetary policy shock, Nominal exchange rate, Rate, Sovereign bonds, Treasury bond yield, U.S. sovereign bond yield, Vector-autoregression, WP, Yield curve

Publication Details

Pages:

15
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/194
Stock No:

WPIEA2015194
ISBN:

9781513588117
ISSN:

1018-5941

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