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Monetary policy transmission, productive activity, and inflation in Brazil: Does uncertainty matter?

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  • Corrêa, Wilson Luiz Rotatori
  • Lopes, Luckas Sabioni

Abstract

This research paper aimed to assess the impact of uncertainties on the outcomes of monetary policy in Brazil after the adoption of inflation targeting. To this end, we adopted the methodology of vector autoregressions with an endogenous threshold (TVAR) and four distinct indicators to characterize regimes of high vs. low macroeconomic uncertainty. The analyzed sample varied from 2003 to 2021, with monthly data. Our results showed that uncertainty tended to increase during recessions in the country. Furthermore, in periods of higher instability, policy interest rate shocks exerted a lesser effect on aggregate production. However, the most significant influence of uncertainty occurred regarding inflation control, which was severely reduced when compared to more tranquil periods. Therefore, we concluded that uncertainty can harm monetary policy transmission in Brazil, especially for the adjustment of prices.

Suggested Citation

  • Corrêa, Wilson Luiz Rotatori & Lopes, Luckas Sabioni, 2023. "Monetary policy transmission, productive activity, and inflation in Brazil: Does uncertainty matter?," The Journal of Economic Asymmetries, Elsevier, vol. 27(C).
    • Handle: RePEc:eee:joecas:v:27:y:2023:i:c:s1703494922000457
    DOI: 10.1016/j.jeca.2022.e00285
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    More about this item

    Keywords

    Uncertainty; Monetary policy; Threshold-VAR; Brazil;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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