Working papers

From weather shocks to energy shocks: evidence from a developing economy

Abstract: This paper uses rainfall shocks to identify its effects on aggregate economic outcomes, highlighting the energy sector. By exploring the high share of hydropower in Brazilian electric energy mix (over 60%), we document the energy sector as an additional transmission channel to weather variation. For that, first we identify general effects of a rainfall shock using a local projection approach, then proceed to further explore the electric energy shocks with a dynamic stochastic general equilibrium model (DSGE). Our main findings reveal that while rainfall shocks have a mild direct effect on economic activity and unemployment, the energy sector is significantly affected, having a shift in production from hydropower to thermal power, leading to higher energy prices. The effects of these climate-induced energy shocks on aggregate economic outcomes are persistent on real economic activity, employment and inflation, having a significant effect, up to twenty-four months after the shocks. The next step is to solve the model and find the long-run impacts of weather shocks, given that the distribution changes over time.

Papers accepted for publication

Measuring monetary policy shocks and their effects in an emerging economy: the case of Brazil

Empirical Economics, 2025

Abstract: We estimate novel narrative monetary policy shocks for Brazil, derived from the Central Bank's reaction function and accounting for both constant and time-varying systematic monetary policy. We then examine the effects of these shocks on Brazilian macroeconomic variables using Structural Vector Autoregressions with external instruments. Our results indicate a reduction in the magnitude and volatility of monetary surprises after 2004, reflecting increased predictability in the Brazilian monetary authority’s actions. We also find that unexpected interest rate hikes significantly reduce output and the monetary aggregate M1, while leaving unemployment and exchange rates unaffected. A transient price puzzle arises within six months of the shock, but models including core inflation reveal a persistent, negative effect of monetary tightening on inflation. These results highlight the complexities of monetary policy transmission in emerging markets.