Working Paper: CEPR ID: DP14097
Authors: Rafael Burjack; Ritong Qu; Allan Timmermann
Abstract: We use a unique Brazilian dataset on daily survey expectations to obtain direct measures of shocks to central bank target rates and changes in economic uncertainty. Using these measures, we gauge the effect of monetary policy shocks on economic uncertainty, term premia, inflation expectations, and bond yields in Brazil. We find strong evidence that inflation uncertainty is key to transmitting monetary policy shocks to the yield curve via time-varying term premia. Finally, Fed announcements have sizeable spillover effects on the Brazilian bond market, as positive shocks to US yields significantly raise term premia in Brazil through elevated exchange rate risk.
Keywords: inflation uncertainty; term structure; monetary policy shocks
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy shocks (E39) | Inflation uncertainty (E31) |
| Inflation uncertainty (E31) | Term premia (Y20) |
| Monetary policy shocks (E39) | Term premia (Y20) |
| Inflation uncertainty (E31) | Nominal yields (E43) |
| Monetary policy shocks (E39) | Expected short rates (E43) |
| Target rate increase (E43) | Nominal term premia (G19) |
| Target rate increase (E43) | Inflation term premia (E31) |
| U.S. monetary policy shocks (E39) | Brazilian term premia (J33) |
| U.S. yields (E43) | Term premia in Brazil (G19) |