Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil

This work applies Markov-switching models, a Bayesian vector autoregressive (BVAR) and Cointegration approach to verify the empirical relationships between expected and effective short-term interest rates in Brazil. The main results corroborate the theoretical notion that the Central Bank can smooth...

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Main Authors: Moreira R.R., Chaiboonsri C., Chaitip P.
Format: Article
Language:English
Published: Inderscience Publishers 2014
Online Access:http://www.scopus.com/inward/record.url?eid=2-s2.0-84905221862&partnerID=40&md5=b4c7ee21b33651894036077dd23aec2c
http://cmuir.cmu.ac.th/handle/6653943832/37577
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Institution: Chiang Mai University
Language: English
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spelling th-cmuir.6653943832-375772014-12-09T05:48:14Z Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil Moreira R.R. Chaiboonsri C. Chaitip P. This work applies Markov-switching models, a Bayesian vector autoregressive (BVAR) and Cointegration approach to verify the empirical relationships between expected and effective short-term interest rates in Brazil. The main results corroborate the theoretical notion that the Central Bank can smooth adjustments in effective short-term interest rates, as the latter affect expected short-term rates, thereby influencing long-term interest rates, which are fundamental for controlling output activity and price changes. Moreover, the MS-models show that these empirical relationships are more significant under a 'higher response regime'. In turn, the BVAR test yields impulseresponse functions showing that shocks in expected rates have more persistent impacts on effective rates than the latter have on the former. Finally, the Cointegration and Vector Error Correction approaches are used as a robustness test and confirm the idea of a co-movement between expected and effective interest rates in Brazil. These results support the notion that Brazilian monetary policy is transparent, predictable and efficient. © 2014 Inderscience Enterprises Ltd. 2014-12-09T05:48:14Z 2014-12-09T05:48:14Z 2014 Article 17520479 10.1504/IJMEF.2014.063836 http://www.scopus.com/inward/record.url?eid=2-s2.0-84905221862&partnerID=40&md5=b4c7ee21b33651894036077dd23aec2c http://cmuir.cmu.ac.th/handle/6653943832/37577 English Inderscience Publishers
institution Chiang Mai University
building Chiang Mai University Library
country Thailand
collection CMU Intellectual Repository
language English
description This work applies Markov-switching models, a Bayesian vector autoregressive (BVAR) and Cointegration approach to verify the empirical relationships between expected and effective short-term interest rates in Brazil. The main results corroborate the theoretical notion that the Central Bank can smooth adjustments in effective short-term interest rates, as the latter affect expected short-term rates, thereby influencing long-term interest rates, which are fundamental for controlling output activity and price changes. Moreover, the MS-models show that these empirical relationships are more significant under a 'higher response regime'. In turn, the BVAR test yields impulseresponse functions showing that shocks in expected rates have more persistent impacts on effective rates than the latter have on the former. Finally, the Cointegration and Vector Error Correction approaches are used as a robustness test and confirm the idea of a co-movement between expected and effective interest rates in Brazil. These results support the notion that Brazilian monetary policy is transparent, predictable and efficient. © 2014 Inderscience Enterprises Ltd.
format Article
author Moreira R.R.
Chaiboonsri C.
Chaitip P.
spellingShingle Moreira R.R.
Chaiboonsri C.
Chaitip P.
Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil
author_facet Moreira R.R.
Chaiboonsri C.
Chaitip P.
author_sort Moreira R.R.
title Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil
title_short Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil
title_full Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil
title_fullStr Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil
title_full_unstemmed Analysing monetary policy's transmission mechanisms through effective and expected interest rates: An application of MS-models, Bayesian VAR and cointegration approaches for Brazil
title_sort analysing monetary policy's transmission mechanisms through effective and expected interest rates: an application of ms-models, bayesian var and cointegration approaches for brazil
publisher Inderscience Publishers
publishDate 2014
url http://www.scopus.com/inward/record.url?eid=2-s2.0-84905221862&partnerID=40&md5=b4c7ee21b33651894036077dd23aec2c
http://cmuir.cmu.ac.th/handle/6653943832/37577
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