Novo Working Paper - EXCHANGE RATE MOVEMENTS AND MONETARY POLICY IN BRAZIL

EXCHANGE RATE MOVEMENTS AND MONETARY POLICY IN BRAZIL:
ECONOMETRIC AND SIMULATION EVIDENCE

Luiz Gustavo Cassilatti Furlani1
Marcelo Savino Portugal2
Márcio Poletti Laurini3

The literature on monetary economy has aroused growing interest in macroeconomics. Due to computational advancements, models have been increasingly more complex and accurate, allowing for the in-depth analysis of the relationships betweenreal economic variables and nominal variables. Therefore, using a dynamic stochastic general equilibrium (DSGE) model, based on Gali and Monacelli (2005), we propose and estimate a model for the Brazilian economy by employing Bayesian methods so as to assess whether the Central Bank of Brazil takes exchange rate fluctuations into account in the conduct of monetary policy.
The most striking result of the present study is that the Central Bank of Brazil does not directly change the interest rate path due to exchange rate movements. A simulation exercise is also used. Our conclusion is that the economy quickly accommodates shocks induced separately on the exchange rate, on the terms of trade, on the interest rate, and on global inflation.
Keywords: Dynamic and stochastic general equilibrium (DSGE) models, monetary policy,
exchange rate, Bayesian methods, simulation.

JEL Classification: E47, E52, F41.

1 Economist, SICREDI S/A Cooperative Credit System (corresponding author).
2 Professor of Economics (UFRGS) and associate CNPq researcher.
3 Researcher (IBMEC-SP) and PhD student at IMECC-Unicamp.

Neste caso mais um motivo de orgulho - trabalhar novamente com Luiz Gustavo e o grande Marcelo Portugal, duas pessoas que eu admiro muito e eu tento assimilar um pouco do talento.
E já dizia o sábio - quem não gosta de métodos bayesianos e modelos dinâmicos de equilíbrio geral bom sujeito não é.