Expectation Shocks: Structural VAR Insights and the Case of Brazil

Thiago Drummond de Mendonca Giudici

International Journal of Economics and Finance, 2025, vol. 17, issue 2, 45

Abstract: This study identifies an expectation shock in Brazil through the estimation of a Structural Bayesian VAR model identified via Cholesky decomposition. The Swap 180 rate is used to capture a “pessimism” expectation shock related to future economic activity. Furthermore, the study employs different prior approaches, such as the Minnesota prior and a diffuse prior, and evaluates alternative recursive orderings in the Cholesky decomposition to test the robustness of the results. This shock aligns with major economic events, such as the turbulent 2002 presidential elections. Among the identified shocks, the expectation shock exhibits one of the strongest effects on economic activity, credit, debt, and exchange rate.

Date: 2025
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