Monetary policy in Brazil: evidence of a reaction function with time-varying parameters and endogenous regressors

Aragón, Edilean Kleber da Silva Bejarano; Medeiros, Gabriela Bezerra de

doi:10.1007/s00181-013-0791-5

Cited by 8 publications

(1 citation statement)

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“…Before 2008, monetary authorities in Mexico used an instrument, namely corto, to signal the market about their preference for the structure of the market interest rate. Aragón and de Medeiros (2015) use Selic interest rate, which is a primary monetary policy instrument, as a measure of monetary policy. Their study shows that monetary authorities have reduced their response to inflation since mid-2010, which does not satisfy the Taylor principle.…”

Section: Disadvantages Of a Single Monetary Policy Indicator In Emerg...mentioning

confidence: 99%

Monetary policy

Bui

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Monetary policy is a crucial tool used by most, not to say all, central banks to finetune macroeconomic conditions. However, empirical evidence regarding its effectiveness is mixed and based on the premise that monetary policy is appropriately measured and identified. Compared with the vast literature for advanced economies, studies investigating the problem of the indicator and identification of monetary policy are limited in emerging economies. ACKNOWLEDGEMENTI would like to thank my wife and family for their support and continuous care throughout my study in Hungary. Also, I would like to express my gratitude and appreciation to the supervisor -Dr Habil. Kiss Gabor David -and other colleagues for their guidance, comments, and corrections. Their contributions are of importance to complete the thesis.Moreover, I would like to show my appreciation to the Doctoral School of Economics of the University of Szeged, the Stipendium Hungaricum for their support during my study.Finally, I am grateful for precious comments of reviewers.

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Section: Disadvantages Of a Single Monetary Policy Indicator In Emerg...mentioning

confidence: 99%

Monetary policy

Bui

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Endogeneity and nonlinearities in Central Bank of Brazil’s reaction functions: an inverse quantile regression approach

2017

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Resumo: Neste trabalho, nós procuramos averiguar não linearidades na função de reação do Banco Central do Brasil (BCB) através da estimação de regressões quantílicas. Como a regra de política monetária apresenta regressores endógenos, nós seguimos os procedimentos sugeridos por Wolters (J Macroecon 34:342-361, 2012) e um estimador de regressão quantílica inversa (RQIV), proposto por Chernozhukov e Hansen (Econometrica 73:245-261, 2005). Este método nos possibilitou detectar não linearidades na função de reação do BCB sem a necessidade de fazer suposições específicas acerca dos fatores que determinam essas não linearidades. Em específico, nós observamos que: i) a resposta da taxa de juros ao hiato da inflação corrente e esperada foi, em geral, mais forte na parte superior da distribuição condicional da taxa de juros Selic; ii) a resposta ao hiato do produto apresentou uma tendência crescente e significativa na parte inferior da distribuição condicional da taxa Selic; iii) a resposta do BCB à taxa de câmbio real foi positiva e mais elevada na cauda superior da distribuição condicional da taxa Selic. Palavras-chave: Regras de política monetária • Regressão quantílica • Regressores endógenos • Banco Central do Brasil.Abstract: In this work, we seek to investigate nonlinearities in the reaction function of the Central Bank of Brazil by estimating quantile regressions. As the monetary policy rule has endogenous regressors, we followed the procedures suggested by Wolters (J Macroecon 34:342-361, 2012) and the method of inverse quantile regression, proposed by Chernozhukov and Hansen (Econometrica 73:245-261, 2005). This method enabled us to detect nonlinearities in the Central Bank of Brazil's reaction function without the need to make specific assumptions about the factors that determine these nonlinearities. In particular, we observed that: i) the response of the interest rate to the current and expected inflation was, in general, stronger in the upper tail of the conditional interest rate distribution; ii) the response to the output gap showed a growing and significant trend in the lower tail of the conditional Selic rate distribution; iii) the response of the Central Bank of Brazil to the real exchange rate was positive and higher in the upper tail of the conditional Selic rate distribution.

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