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Expectation Shocks: Structural VAR Insights and the Case of Brazil

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  • Thiago Drummond de Mendonca Giudici

Abstract

This study identifies an expectation shock in Brazil through the estimation of a Structural Bayesian VAR model identified via Cholesky decomposition. The Swap 180 rate is used to capture a “pessimism” expectation shock related to future economic activity. Furthermore, the study employs different prior approaches, such as the Minnesota prior and a diffuse prior, and evaluates alternative recursive orderings in the Cholesky decomposition to test the robustness of the results. This shock aligns with major economic events, such as the turbulent 2002 presidential elections. Among the identified shocks, the expectation shock exhibits one of the strongest effects on economic activity, credit, debt, and exchange rate.

Suggested Citation

  • Thiago Drummond de Mendonca Giudici, 2025. "Expectation Shocks: Structural VAR Insights and the Case of Brazil," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 17(2), pages 1-45, February.
    • Handle: RePEc:ibn:ijefaa:v:17:y:2025:i:2:p:45
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    References listed on IDEAS

    as
    1. Sylvain Leduc & Keith Sill, 2013. "Expectations and Economic Fluctuations: An Analysis Using Survey Data," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1352-1367, October.
    2. Barboza, Ricardo de Menezes & Zilberman, Eduardo, 2018. "Os Efeitos da Incerteza sobre a Atividade Econômica no Brasil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 72(2), June.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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