Tayloring Brazil: a system dynamics model for monetary policy feedback


Autoria(s): Neugebauer, Felix Sebastian
Contribuinte(s)

Oliveira, Antonio Carlos Manfredini da Cunha

Moura, Alkimar R.

Sanches, Lars Meyer

Data(s)

20/01/2012

20/01/2012

20/12/2011

Resumo

The thesis introduces a system dynamics Taylor rule model of new Keynesian nature for monetary policy feedback in Brazil. The nonlinear Taylor rule for interest rate changes con-siders gaps and dynamics of GDP growth and inflation. The model closely tracks the 2004 to 2011 business cycle and outlines the endogenous feedback between the real interest rate, GDP growth and inflation. The model identifies a high degree of endogenous feedback for monetary policy and inflation, while GDP growth remains highly exposed to exogenous eco-nomic conditions. The results also show that the majority of the monetary policy moves during the sample period was related to GDP growth, despite higher coefficients of inflation parameters in the Taylor rule. This observation challenges the intuition that inflation target-ing leads to a dominance of monetary policy moves with respect to inflation. Furthermore, the results suggest that backward looking price-setting with respect to GDP growth has been the dominant driver of inflation. Moreover, simulation exercises highlight the effects of the new BCB strategy initiated in August 2011 and also consider recession and inflation avoid-ance versions of the Taylor rule. In methodological terms, the Taylor rule model highlights the advantages of system dynamics with respect to nonlinear policies and to the stock-and-flow approach. In total, the strong historical fit and some counterintuitive observations of the Taylor rule model call for an application of the model to other economies.

Identificador

http://hdl.handle.net/10438/9098

Idioma(s)

en_US

Palavras-Chave #Taylor rule #System dynamics #Monetary policy #Business cycle #New Keynesian economics #Regra de Taylor #Política monetária - Brasil #Política monetária - Modelos matemáticos #Economia keynesiana #Ciclos econômicos #Política econômica - Brasil
Tipo

Dissertation