Appendix I. Data and Robustness
Cochrane, John, 2016, “Michelson-Morley, Occam and Fisher: The Radical Implications of Stable Inflation at Near-Zero Interest Rates?” Working Paper (Hoover Institution).
International Monetary Fund, 2016, “Upgrading Brazil’s Inflation-Targeting Framework”, in Brazil: Selected Issues, IMF Country Report No. 16/349 (Washington).
García-Schmidt, Mariana, and Michael Woodford, 2015, “Are Low Interest Rates Deflationary? A Paradox of Perfect-Foresight Analysis”, NBER Working Paper No. 21614 (Cambridge, Massachusetts: National Bureau of Economic Research).
Garín J, Lester and Eric Sims, 2016, “Raise Rates to Raise Inflation? Neo-Fisherianism in the New Keynesian Model”, NBER Working Paper No. 22177 (Cambridge, Massachusetts: National Bureau of Economic Research).
Mishkin, Frederic, 1996, “The Channels of Monetary Policy Transmission: Lessons for Monetary Policy”, NBER Working Paper No. 5464 (Cambridge, Massachusetts: National Bureau of Economic Research).
Prepared by Troy Matheson (WHD).
Neo-Fisherian effects exist in standard models used by central banks under the assumption that economic agents have perfect foresight and do not base their decisions on the past observations. See Garcia-Schmidt and Woodford (2015) and Garin and others (2016).
VAR lag lengths are selected using the Swartz-Bayesian Inflation Criteria. Parameter uncertainty is captured in the analysis using bootstrapping methods, where for each VAR is resampled 1000 times.
Each VAR contains six variables so there is 720 different ways to order the variables to identify shocks: 69 of these orderings lead to unique inflation responses to an interest rate shock. 1,000 parameterizations of each reduced-form model are simulated using bootstrapping methods, leading to 69,000 different estimates of the response of inflation to an interest rate for each VAR examined.
For each country, the output gap is defined as the percent deviation of real GDP from a linear trend.
See Minutes of the 205th Meeting of the Monetary Policy Committee (“Copom”) of the Central Bank of Brazil for a discussion.