The Spending Cap and Monetary Policy Effectiveness

Gustavo Ribeiro, Vladmir Teles and João Costa-Filho
Authors registered in the RePEc Author Service: João Ricardo Mendes Gonçalves Costa Filho

MPRA Paper from University Library of Munich, Germany

Abstract: What is the impact on the transmission of monetary policy in Brazil under the fiscal ceiling implemented in 2016? We find empirical evidence of the response of fiscal variables to monetary policy shocks by estimating a dynamic model factor. Then, we analyze whether the imposition of an expenditure ceiling affected monetary policy effectiveness in Brazil. We propose a heterogeneous-agents new keynesian model (HANK) to the Brazilian economy with s spending cap and find that the expenditure ceiling adopted by the country might have “muted” a fiscal transmission channel for monetary policy, reducing its impact on the output gap.

Keywords: Monetary Policy; Fiscal Policy; HANK; Brazil (search for similar items in EconPapers)
JEL-codes: E12 E21 E24 E43 E52 E62 (search for similar items in EconPapers)
Date: 2023-01-26
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:116148

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