Theory and empirical evidence in monetary policy analysis

• Grant number: 10/17566-9
• Support type: Scholarships abroad - Research
• Effective date (Start): February 22, 2011
• Effective date (End): February 21, 2012
• Field of knowledge: Applied Social Sciences - Economics - Fiscal and Monetary Policies
• Principal researcher: Roseli da Silva
• Grantee: Roseli da Silva
• Host: Ricardo A. M. R. Reis
• Home Institution: Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (FEARP). Universidade de São Paulo (USP). Ribeirão Preto , SP, Brazil
• Research place: Columbia University in the City of New York, United States

Abstract

The last fifteen years consolidated a convergence in vision and methodology in modern macroeconomics that has been represented by DSGE (Dynamic Stochastic General Equilibrium) models, whose main objective is to explain aggregate economic phenomena, based on microfoundations (firms, families and government optimizers their objective-functions, under budgetary and technological constraints), rational expectations and specifications of market imperfections. Nevertheless, both practical and theoretical developments in analysis of economic fluctuations and the impact of monetary policy have placed increasing challenges to researchers and policy makers, ranging from the incorporation of relevant characteristics and transmission mechanisms of the economy in DSGE models, to the need of considering stylized facts typical of emerging economies. This project aims therefore examine critically the effective contributions of the DSGE models for the assessment and management of monetary policy from the theoretical and empirical standpoint, applied to the Brazilian case. To do so, we will proceed to extend the model originally proposed by GOUVÊA et al (2008), followed by a re-examination of empirical evidence through econometric methodology exposed in JUSELIUS (2006 and 2010), concluding with the proposal to consider the theoretical and empirical approaches in the search for meaningful models for the evaluation of monetary policy, which might be considered appropriate guides for decision makers, as proposed by SPANOS (2009). (AU)