Effects of Monetary Policy News on Financial Assets: evidence from Brazil on a bivariate VAR-GARCH model (2006-17)

Tarciso Silva, Osmani Guillén, George Morcerf and Andre Modenesi

No 536, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: The impact of news related to the inflation targeting regime on the financial market is analyzed by estimating a bivariate VAR GARCH-BEKK-in-mean model. With daily data, from January 2006 to May 2017, of stock price index (IBOVESPA), exchange rate (BRL / USD) and interbank deposit rate (DI360), we have developed an index of positive and negative news to measure the impact of press releases based on Caporale et al. (2016) and Caporale et al. (2018). Although the literature on the subject is vast, this article fills relevant gaps in three ways (i) we investigate the two-way relationship between news releases related to monetary policy and the behavior of asset prices; (ii) we consider the relationship between the second moments of the variables of interest, using conditional volatility as a proxy for uncertainty; and (iii) we provide a time series approach to measure the effect of macroeconomic news releases on financial asset returns. The results indicate that there is an average spread effect of the news for the three variables used as proxies for asset prices in Brazil.

Date: 2020-09
New Economics Papers: this item is included in nep-cba and nep-mac
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Journal Article: Effects of monetary policy news on financial assets: Evidence from Brazil on a bivariate VAR-GARCH model (2006–17) (2022)
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