Nonlinearities and Price Puzzle in Brazil

Roberto Ferreira and Ivan Castelar
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Ivan Castelar: Federal University of Ceará

Economia, 2008, vol. 9, issue 1, 47-62

Abstract: What is called a price puzzle is a positive and persistent response of ination to a unit shock in the interest rate's innovation. Using a VAR to analyse monetary policy in Brazil, this paper comes to the conclusion that when nonlinearities in the data were considered, most of this e_ect vanishes. This is done _rstly by checking if the series are unit root processes or nonlinear trend stationary. After that a nonparametric co-trending analysis was applied. The test result favored a common nonlinear trend between ination and the interest rate, which seems to a_ect the system innovation analysis, inducing most of the price puzzle e_ect.

Keywords: Monetary Policy; Nonlinearities; Nonlinear Trend; Co-Trending; Common Treds; Price Puzzle (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2008
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Related works:
Working Paper: NONLINEARITIES AND PRICE PUZZLE IN BRAZIL (2006)
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