Asymmetric Effects of Monetary Policy in the U.S. and Brazil

27 Pages Posted: 9 Dec 2013

See all articles by Ioannis Pragidis

Ioannis Pragidis

Democritus University of Thrace

Periklis Gogas

Democritus University of Thrace - Department of Economics

Benjamin M. Tabak

FGV/EPPG

Date Written: December 7, 2013

Abstract

We empirically test the effects of anticipated and unanticipated monetary policy shocks on the growth rate of real industrial production and explicitly test for different types of asymmetries in monetary policy implementation for two major international economies, the U.S. and Brazil. We depart from the conventional method of VAR analysis to estimate unanticipated monetary shocks and instead we use a combination of other methods. We first identify the Taylor rule that best describes the reaction of both central banks and then we test both forward looking linear and nonlinear models concluding that a Logistic Smooth Transition Autoregressive (LSTAR) forward looking model of the Taylor rule best describes the US FED Funds rate while a linear Taylor rule with the inclusion of a dummy variable best describes the reaction of the Central Bank of Brazil (BCB). We then use in-sample forecast errors in order to derive or identify the unexpected monetary shocks for both countries. In line with Cover (1992), we use these shocks to explore any asymmetries in the conduct of monetary policy on the growth rate of real industrial production. We also find asymmetries between anticipated and unanticipated monetary shocks as well as between effects of positive and negative shocks.

Keywords: Taylor rule, monetary policy, nonlinear effects, LSTAR

JEL Classification: E4, E52, E58

Suggested Citation

Pragidis, Ioannis and Gogas, Periklis and Tabak, Benjamin M., Asymmetric Effects of Monetary Policy in the U.S. and Brazil (December 7, 2013). Available at SSRN: https://ssrn.com/abstract=2364832 or http://dx.doi.org/10.2139/ssrn.2364832

Ioannis Pragidis

Democritus University of Thrace ( email )

University Campus
Department of Economics
Komotini, Rodopi 69100
Greece

Periklis Gogas (Contact Author)

Democritus University of Thrace - Department of Economics ( email )

Komotini, 69100
Greece

HOME PAGE: http://www.econ.duth.gr/personel/dep/gkogkas/index.en.shtml

Benjamin M. Tabak

FGV/EPPG ( email )

SGAN Av. L2 Norte - Quadra 602 - Módulos A, B e C
Brasília, Rio de Janeiro 70830-051
Brazil

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