Alexis Maka

Monetary Policy, Inflation and the Level of Economic Activity in Brazil after the Real Plan: Stylized Facts from Svar Models

This article uncovers some stylized facts about the short run fluctuations of the Brazilian economy after the Real Plan, giving special attention to the identification of the effects of monetary policy shocks. A distinctive feature of this article is the careful attention paid to monetary policy developments after the Real Plan when dividing our sample into two subsamples (1996:07-1998:08 and 1999:03-2004:12). We use directed acyclic graphs to identify the Structural Vector Autoregression (SVAR) models. In contrast with most SVAR analysis for Brazil, we found empirical evidence that supports the view that a contractionary monetary policy indeed reduces the price level.

Monetary policy regimes in Brazil

This article estimates the monetary policy rule followed by the Brazilian Central Bank for setting its main policy instrument, the SELIC rate, for the period after the Real Plan. In order to overcome the uncertainty over the dates at which changes in parameters occurred, this paper uses regime-dependent-switching probabilities according to a hidden Markov chain to model possible deviations from a simple linear reaction function. From July 1996 to January 2006 the Brazilian monetary policy can be fully characterized by four policy regimes. The changes in monetary policy in this period are best described by recurring regime changes, instead of once-and-for-all shifts. We have identified substantial differences in the way monetary policy was conducted in the subperiods before and after 1999, when the Brazilian exchange rate policy regime changed from crawling peg to free-floating. At each of these subperiods there are two recurring regimes and the two regimes of one subperiod differ from the two regimes of the other.

MEASURING MONETARY POLICY STANCE IN BRAZIL

In this article we use the theory of conditional forecasts to develop a new Monetary Conditions Index (MCI) for Brazil and compare it to the ones constructed using the methodologies suggested by Bernanke and Mihov (1998) and Batini and Turnbull (2002). We use Sims and Zha (1999) and Waggoner and Zha (1999) approaches to develop and compute Bayesian error bands for the MCIs. The new indicator we develop is called the Conditional Monetary Conditions Index (CMCI) and is constructed using, alternatively, Structural Vector Autoregressions (SVARs) and Forward-Looking (FL) models. The CMCI is the forecasted output gap, conditioned on observed values of the nominal interest rate (the Selic rate) and of the real exchange rate. We show that the CMCI, when compared to the MCI developed by Batini and Turnbull (2002), is a better measure of monetary policy stance because it takes into account the endogeneity of variables involved in the analysis. The CMCI and the Bernanke and Mihov MCI (BMCI), despite conceptual differences, show similarities in their chronology of the stance of monetary policy in Brazil. The CMCI is a smoother version of the BMCI, possibly because the impact of changes in the observed values of the Selic rate is partially compensated by changes in the value of the real exchange rate. The Brazilian monetary policy, in the 2000:9- 2005:4 period and according to the last two indicators, has been expansionary near election months. Neste artigo utiliza-se a teoria das previsoes condicionais para o desenvolvimento de um novo Indice de Condicoes Monetarias [Monetary Conditions Index (MCI)] para o Brasil, comparando-o com os indices obtidos seguindo as metodologias sugeridas por Bernanke e Mihov (1998) e Batini e Turnbull (2002). Adicionalmente, desenvolvem-se e calculam-se intervalos de confianca bayesianos para os MCIs, empregando-se a abordagem proposta por Sims e Zha (1999) e Waggoner e Zha (1999). O novo indicador desenvolvido e chamado de Indice de Condicoes Monetarias Condicional [Conditional Monetary Conditionals Index (CMCI)], e e construido utilizando-se alternativamente os modelos de Auto-regressao Vetorial Estrutural [Structural Vector Autoregressions (SVARs) e Antecipativo [Forward-Looking (FL). O CMCI e a previsao do hiato do produto, condicionada aos valores observados da taxa de juros nominal (taxa Selic) e da taxa de câmbio real. Mostra-se que o CMCI, comparado ao MCI desenvolvido por Batini e Turnbull (2002), e um melhor indicador do estado da politica monetaria porque leva em consideracao a endogeneidade das variaveis envolvidas na analise. O CMCI e o MCI Bernanke-Mihov (BMCI), apesar das diferencas conceituais, estabelecem uma cronologia semelhante para o estado da politica monetaria no Brasil. O CMCI e uma versao suavizada do BMCI, provavelmente porque o impacto de mudancas nos valores observados da taxa Selic e parcialmente compensado por mudancas no valor da taxa de câmbio real. De acordo com o CMCI e o BMCI, no periodo entre setembro de 2000 e abril de 2005, a politica monetaria brasileira tem sido expansionista nos meses proximos as eleicoes.