Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach

This study analyzes the effects of “financia lstress” on the Uruguayan macroeconomy in 1998Q3-2016Q2 period with the underlying idea that financial shocks propagate differently during “normaltimes” than during... [ view full abstract ]

This study analyzes the effects of “financia lstress” on the Uruguayan macroeconomy in 1998Q3-2016Q2 period with the underlying idea that financial shocks propagate differently during “normaltimes” than during “stress”. This behavior is captured in a multivariate framework through a Markov-switching vector auto regressive (MS-VAR) model. The evidence found so far supports the idea that financial conditions affect the macroeconomy for not only there are different private investment long-runaverage growth rates but also the behavior of monetary policy changes directly.