Public Debt Management in Brazil

Appendix

The model used in the simulation exercises to obtain the impulse responses to supply,
demand and Embi spread shocks is made of the following equations:

Embi Spread equation

Embit = μo + μ1Embit-1 + μ₂Bt-ιit-ι + μ3SpBaat + μ4DU + Vem_ba    (1)

where Embi_t is the Embi spread, SpBaa is the US Corporate bond spread and DU
is a dummy variable taking the value of 1 for the crisis period 2002:06 -2002:12.

Exchange rate equation

e_t = δ₀ + δ₁e_t-1 + δ₂ (i_t-1 - i_t^U_-^S₁)+δ₃Embi_t + δ₄∆Embi_t + v_et         (2)

where i^US is the US federal funds rate.

Output gap equation

yt = γ0 + γ1yt-1 + γ2yt-2 + γ3it-6 + γ4Embit-1 + vyt                 (3)

Inflation equation

πt = α0 + α1πt_-1 + α2yt_-1 + α3(et_-6 - et_-12) + α4Σ_i⁴₌₁Embit_-i + v_πt      (4)

Selic rate equation

it = ρit-1 +(1- ρ)[β0 + β1 (πt-1 - π^T ) + β2∆et-4] + vit                (5)

where π^T is the inflation target.

The inflation rate, the interest rates, the spreads and the output gap are monthly
and have not been multiplied by 100. The exchange rate e_t is the logarithm of the
$Real/US-dollar exchange rate. An Embi spread shock is a one standard deviation
shock to equation (1), a demand shock is a one standard deviation shock to equation
(3) and a supply shock is a one standard deviation shock to equation (4).

The model is estimated by Iterative Least Squares.

<<   27   28   29   30   31   32   33   >>

More intriguing information