DP14097 Fluctuations in Economic Uncertainty and Transmission of Monetary Policy Shocks: Evidence Using Daily Surveys from Brazil

Author(s): Rafael Burjack, Ritong Qu, Allan Timmermann
Publication Date: November 2019
Keyword(s): Inflation uncertainty, monetary policy shocks, term structure
JEL(s):
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14097

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.