Jane Haldimand Marcet: Impact of Monetary Policy Shocks in the Peruvian Economy Over Time

Flavio Pérez Rojo and Gabriel Rodríguez
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Flavio Pérez Rojo: Pontificia Universidad Católica del Perú.

No 2023-523, Documentos de Trabajo / Working Papers from Departamento de Economía - Pontificia Universidad Católica del Perú

Abstract: We investigate the evolution of the impact of monetary policy (MP) shocks in Peru in 1996Q1-2018Q2 using a set of time-varying parameter vector autoregressive models with stochastic volatility (TVP-VAR- SV), as proposed by Chan and Eisenstat (2018). The main results are: (i) the volatilities, intercepts, and contemporaneous coe cients change more gradually than VAR coe cients over time; (ii) the volatility of MP shocks falls from 4% to 0.3% on average during the In ation Targeting (IT) regime; (iii) in the long run, a contractionary MP shock decreases both gross domestic product (GDP) growth and in ation by 0.28% and 0.1%, respectively; (iv) the interest rate reacts faster to aggregate supply shocks than to both aggregate demand shocks and exchange rate shocks; (v) under the pre-IT regime, MP shocks explain almost 20%, 10%, and 85% of the uncertainty in GDP growth, in ation, and the interest rate, respectively; and under the IT regime, all these percentages shrink to 1-2%. The sensitivity analysis con rms the robustness of the main results across various prior speci cations, measures of external and domestic variables, and recursive identi cations. In general, the results show that MP has contributed to diminishing macroeconomic volatility in Peru. JEL Classification-JE: C32, E32, E51, E52.

Keywords: Deviance Information Criterion; Peru; Monetary policy; time; Time-Varying Parameter VAR; Marginal Likelihood; Stochastic Volatility. (search for similar items in EconPapers)
Pages: 43
Date: 2023
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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