An Assessment of the Credit Channel in Brazil

This work evaluates the bank lending channel in Brazil, in the post-Real Plan period. The work includes descriptive analysis and formal econometric tests based on several indicators of the credit market. First of all, the descriptive analysis shows that the main relationship between credit indicators, monetary policy and economic activity are in line with the predictions of the credit channel theory. Additionally, it highlights the fact that bank loans in Brazil are predominantly short-term, which helps to explain the faster reaction of the economy to monetary shocks. Second, Granger causality tests suggest that loan supply and, to a less extent, bank interest rate spread, are leading indicators of real output. Third, VAR-based impulse response functions suggest that Brazilian banks contract credit supply and increase the interest spread in reaction to a monetary tightening, which ultimately contracts real output. Fourth, tests based on velocity of credit also support the existence of a bank lending channel in Brazil, as suggested by the tests based on indicators of prices and quantities. Finally, we cannot reject the inclusion of credit in traditional estimates of the IS curve. Taken together, the empirical tests suggest that the bank lending channel matters for the monetary policy transmission mechanism in Brazil and conforms with the predictions of the theory.Bank Lending Channel; Monetary Policy; Credit

Inequality and Poverty: Stylized Facts and Simulations

This paper analyses the relations between poverty, inequality and economic growth in Brazil. First of all, based on recent research, it shows characteristics and historical evolution of inequality and poverty. These characteristics are not novelty to specialized research, but drawing them as stylized facts gives a comprehensive idea of the matter. Then the work builds simulations based on Mendonça & Paes de Barros’s methodology (1997). These simulations depict the impact of economic growth and inequality on poverty and agree with both empirical evidences from recent papers and results found by those authors. The exercise shows an inverse relation between growth and poverty, and a positive one between inequality and poverty. Finally, the paper criticizes the recent Brazilian research.poverty; inequality; economic growth; public policy; education

Estimating Ibovespa's Volatility

This paper estimates the conditional volatility of the main Brazilian stock market index (Ibovespa), using traditional models of the GARCH family and models of stochastic volatility (SV). Most model selection and performance criteria suggest that both aproaches capture well Ibovespa's volatility, with a slight advantage of the EGARCH(1,1) model. Additionally, the two approaches also behave similarly in practical applications such as the calculation of Value at Risk (VaR).Conditional volatility; Garch; Ibovespa.

The Role of Interest Rates in the Brazilian Business Cycle

This paper offers additional insights on the relationship between interest rates and business cycles in Brazil. First, I document that Brazilian interest rates are very volatile, counter-cyclical and positively correlated with net exports, as observed in other emerging economies. Next, I present a dynamic general equilibrium model in which firms face working capital constraints and labor supply is independent of consumption. This parsimonious model, appropriately calibrated to the Brazilian economy, predicts that interest rate shocks can explain about one third of output fluctuations and generates business cycle regularities consistent with the Brazilian data.

Desigualdade e Pobreza: Fatos Estilizados e Simulações

This paper analyses the relations between poverty, inequality and economic growth in Brazil. First of all, based on recent research, it shows characteristics and historical evolution of inequality and poverty. These characteristics are not novelty to specialized research, but drawing them as stylized facts gives a comprehensive idea of the matter. Then the work builds simulations based on Mendonça & Paes de Barros’s methodology (1997). These simulations depict the impact of economic growth and inequality on poverty and agree with both empirical evidences from recent papers and results found by those authors. The exercise shows an inverse relation between growth and poverty, and a positive one between inequality and poverty. Finally, the paper criticizes the recent Brazilian research

Uma Avaliação do Canal de Crédito no Brasil

This work evaluates the bank lending channel in Brazil, in the post-Real Plan period. The work includes descriptive analysis and formal econometric tests based on several indicators of the credit market. First of all, the descriptive analysis shows that the main relationship between credit indicators, monetary policy and economic activity are in line with the predictions of the credit channel theory. Additionally, it highlights the fact that bank loans in Brazil are predominantly short-term, which helps to explain the faster reaction of the economy to monetary shocks. Second, Granger causality tests suggest that loan supply and, to a less extent, bank interest rate spread, are leading indicators of real output. Third, VAR-based impulse response functions suggest that Brazilian banks contract credit supply and increase the interest spread in reaction to a monetary tightening, which ultimately contracts real output. Fourth, tests based on velocity of credit also support the existence of a bank lending channel in Brazil, as suggested by the tests based on indicators of prices and quantities. Finally, we cannot reject the inclusion of credit in traditional estimates of the IS curve. Taken together, the empirical tests suggest that the bank lending channel matters for the monetary policy transmission mechanism in Brazil and conforms with the predictions of the theory

Extração da Volatilidade do Ibovespa

This paper estimates the conditional volatility of the main Brazilian stock market index (Ibovespa), using traditional models of the GARCH family and models of stochastic volatility (SV). Most model selection and performance criteria suggest that both aproaches capture well Ibovespa's volatility, with a slight advantage of the EGARCH(1,1) model. Additionally, the two approaches also behave similarly in practical applications such as the calculation of Value at Risk (VaR)

Uma Avaliação do Canal de Crédito no Brasil

This work evaluates the bank lending channel in Brazil, in the post-Real Plan period. The work includes descriptive analysis and formal econometric tests based on several indicators of the credit market. First of all, the descriptive analysis shows that the main relationship between credit indicators, monetary policy and economic activity are in line with the predictions of the credit channel theory. Additionally, it highlights the fact that bank loans in Brazil are predominantly short-term, which helps to explain the faster reaction of the economy to monetary shocks. Second, Granger causality tests suggest that loan supply and, to a less extent, bank interest rate spread, are leading indicators of real output. Third, VAR-based impulse response functions suggest that Brazilian banks contract credit supply and increase the interest spread in reaction to a monetary tightening, which ultimately contracts real output. Fourth, tests based on velocity of credit also support the existence of a bank lending channel in Brazil, as suggested by the tests based on indicators of prices and quantities. Finally, we cannot reject the inclusion of credit in traditional estimates of the IS curve. Taken together, the empirical tests suggest that the bank lending channel matters for the monetary policy transmission mechanism in Brazil and conforms with the predictions of the theory

Monetary and exchange rate policies for the perfect storm: The case of the Bahamas, Barbados, Guyana, Haiti, Jamaica, Suriname, and Trinidad & Tobago

This study provides a set of tools to analyze the monetary and exchange rate policy issues in the seven countries of the Inter-American Development Bank's Caribbean region (The Bahamas, Barbados, Jamaica, Haiti, Guyana, Suriname, and Trinidad and Tobago). It then applies some of them to the analysis of the impact of the global turmoil on these economies in the last quarter of 2008. The paper also discusses, in light of both recent theoretical developments and key aspects of these economies, the monetary and exchange policy responses to the initial phase of the global turmoil

SAMBA: Stochastic Analytical Model with a Bayesian Approach

We develop and estimate a DSGE model for the Brazilian economy, to be used as part of the macroeconomic modeling framework at the Central Bank of Brazil. The model combines the building blocks of standard DSGE models (e.g., price and wage rigidities and adjustment costs) with the following features that better describe the Brazilian economy: (i) a fiscal authority pursuing an explicit target for the primary surplus; (ii) administered or regulated prices as part of consumer prices; (iii) external finance for imports, amplifying the effects of changes in external financial conditions on the economy; and (iv) imported goods used in the production function of differentiated goods. It also includes the presence of financially constrained households. We estimate the model with Bayesian techniques, using data starting in 1999, when inflation targeting was implemented. Model evaluation, based on impulse response functions, moment conditions, variance error decomposition and initial forecasting exercises, suggests that the model can be a useful tool for policy analysis and forecasting.