Fluctuations in Economic Uncertainty and Transmission of Monetary Policy Shocks: Evidence Using Daily Surveys from Brazil

Allan Timmermann, Rafael Burjack and Ritong Qu

No 14097, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We use a unique Brazilian dataset on daily survey expectations to obtain direct measures of shocks to central bank target rates and changes in economic uncertainty. Using these measures, we gauge the effect of monetary policy shocks on economic uncertainty, term premia, inflation expectations, and bond yields in Brazil. We find strong evidence that inflation uncertainty is key to transmitting monetary policy shocks to the yield curve via time-varying term premia. Finally, Fed announcements have sizeable spillover effects on the Brazilian bond market, as positive shocks to US yields significantly raise term premia in Brazil through elevated exchange rate risk.

Keywords: Inflation uncertainty; Term structure; Monetary policy shocks (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-mac and nep-mon
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