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Monetary Policy and Exchange Rate: Effects on Disaggregated Prices in a FAVAR Model for Brazil

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  • Rocha Lima, Elcyon Caiado
  • Martinez, Thiago Sevilhano
  • Cerqueira, Vinícius Santos
Abstract
This paper investigates the effects of monetary and exchange rate shocks on disaggregated prices of the Brazilian Consumer Price Index (IPCA), from 1999 to 2011, using a factor-augmented vector autoregressive model (FAVAR). We estimate the model with Bayesian techniques, and construct impulse-response functions using sign restrictions over the responses of macroeconomic variables. The main results are: a) taking into account the weights, 50% of the rates of price change at the sub-items level fell after a monetary shock and 40% rose after exchange rate's shock; b) only 0.3% of the sub-items showed price puzzle for monetary shocks and 4.7% for exchange rate shocks; c) macroeconomic shocks are more persistent than series-specific shocks; d) for the sub-itens, series-specific shocks are the main determinants of the variance, but macro shocks are more influent over aggregated series e) the answers are different according to the sector considered.

Suggested Citation

  • Rocha Lima, Elcyon Caiado & Martinez, Thiago Sevilhano & Cerqueira, Vinícius Santos, 2018. "Monetary Policy and Exchange Rate: Effects on Disaggregated Prices in a FAVAR Model for Brazil," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 38(1), May.
    • Handle: RePEc:sbe:breart:v:38:y:2018:i:1:a:43674
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    References listed on IDEAS

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    Cited by:

    1. Thiago Drummond de Mendonça Giudici & Elcyon Caiado Rocha Lima, 2024. "The business cycle in Brazil: identification via heteroskedasticity," International Economics and Economic Policy, Springer, vol. 21(3), pages 649-684, July.

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