Monetary Policy and Economic Activity in the BRICS

This paper provides time-series and panel evidence on the monetary policy transmission for five key emerging market economies: Brazil, Russia, India, China and South Africa (BRICS). The analysis is based on a Bayesian vector auto-regression (VAR) model that includes seven key variables. Instead of the conventional Choleski decomposition as used in the literature, Bayesian methodology has been used to identify the monetary policy (positive interest rate) shock along with using the more recent sign restrictions approach. Finally, to summarise the response for this group of key emerging market economies, we carry out a panel VAR exercise, which provides further robustness of our finding that contractionary monetary policy has a negative effect on output. These results are robust to changes in the specification, the methodology and sub-sample time horizon.