Monetary Transmission in an Emerging Targeter: The Case of Brazil

By A. R. Pagan, Douglas Laxton, Luis Catão

August 1, 2008

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A. R. Pagan, Douglas Laxton, and Luis Catão. Monetary Transmission in an Emerging Targeter: The Case of Brazil, (USA: International Monetary Fund, 2008) accessed November 21, 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

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.

Subject: Bank credit, Exchange rates, Inflation, Output gap, Real exchange rates

Keywords: Exchange rate, Monetary policy, Mover accent, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/191
Stock No:

WPIEA2008191
ISBN:

9781451870497
ISSN:

1018-5941

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