Effectiveness of Monetary Transmission
Mechanism Under Confidence and
Uncertainty: Evidence from Brazil
Dissertation Proposal
194466
Pooja Srihari
5ECOH-B
Guided by: Dr Aneesh K.A
Introduction
Monetary transmission mechanismChanges in GDP and inflation
Consumer, Business and
Government uncertainty
Post the Global Financial Crisis of
2008, the role uncertainty plays in the
monetary transmission mechanism has
started to grow.
Preliminary
Literature
Review
1. What is monetary transmission mechanism and
its channels?
2. The role played by uncertainty in the economy
3. Perspectives of uncertainty and confidence
4. Existing empirical evidence of monetary policy
inefficiency during uncertainty
5. Empirical studies of monetary policy transmission that
exist in Brazil
Empirical Evidence
Authors
Findings
Aastveit, K. A., Natvik, G. J.,
& Sola, S. (2017)
The paper delves into US uncertainty influence on non-US economies policy effectiveness. The paper finds that
monetary policy is less effective when uncertainties are high. US uncertainty has an influence on the weakening of
the monetary policy of Canada.
Balcilar, M., Demirer, R.,
Gupta, R., & Eyden, R. van.
(2017)
They measure the impact of economic policy uncertainty of the US on the monetary policy effectiveness in the Euro
area. The results indicate that economic policy uncertainty in the US weakens the monetary policy shock in the Euro
area.
Blot, C., Hubert, P., &
Labondance , F. (2020)
Study the influence of several uncertainty measures and find that uncertainty does not weaken monetary policy
transmission to inflation in the Euro area through a local projection approach. They find that uncertainty shock
resemblance an AD shock.
Balcilar, M., Ozdemir, Z. A.,
Ozdemir, H., Aygun, G., &
Wohar, M. E. (2021)
Conduct an empirical assessment of the effectiveness of monetary policy for five Asian economies China, Hong
Kong, India, Japan and South Korea. The paper suggests limited evidence in support of the economic theory that
monetary policy efficiency falls during high economic uncertainty prevailing in the nation.
Pratap, B., & Dhal, S. (2021)
Through local projections methods, they found that in the context of uncertainty shock in India leads to a fall in
output and a rise in prices (AS shock). The study suggests that the extent of uncertainty shock on the demand and
supply dynamics will lead to different outcomes requiring different policy implications or measures.
Research Gap
Limited Studies on Large
Emerging Nations
Evaluation of monetary transmission
mechanisms within the framework of
the confidence channel.
No exclusive evaluation
of confidence channel in
Brazil
The existing literature of Brazil's
monetary transmission mechanism
is evaluated only on well-defined
conventional channels.
Rationale
It is useful to understand consumer
and business confidence
Understand if uncertainty weakens
the monetary policy effectiveness of
the economy
Policy implications for the monetary
policy of Brazil
Research
Question &
Research
Objective
Research Question: Is monetary policy less
effective when macroeconomic
uncertainty is high?
1
To examine whether uncertainty
shocks resemble AS shocks in Brazil
2
To determine if there exists
ineffectiveness of monetary policy
transmission when uncertainty is
considered
3
To explore the usefulness in considering
confidence and uncertainty perception
as a channel of monetary transmission
Data
Data &
Methodology
Secondary Time Series Data
Time of study 2000 to 2018
Quarterly CPI, Real GDP, Selic Interest rate and
Economic policy uncertainty index of Brazil
Objective 1: Local projectionbased method by Jorda (2005)
Use the local projection-based method by Jorda (2005)
to study the response of inflation, real GDP, and
monetary policy’s role during an unanticipated increase
in uncertainty in Brazil.
Objective 2: Nonlinear model
Use the nonlinear model to understand if monetary
policy efficiency is weaker during high economic
uncertainty.
Research Timeline
NOVEMBER 2021
Submission of Literature
Review
JANUARY 2022
MARCH 2022
Submission of Chapter IV & V
Submission of Final
Dissertation
APRIL 2022
Interim Presentation
Submission of Chapter I & II
VIVA VOCE Examination
FEBRUARY 2022
MAY 2022
Submission of Chapter III
Research Paper sent for
publication
Thank You