The effects of global uncertainty shocks on the Brazilian economy

Abstract

This study explores the impacts of global uncertainty shocks on the Brazilian economy, with a focus on key macroeconomic variables such as real GDP, inflation, interest rates, and exchange rates. Using a Structural Vector Autoregressive (SVAR) model, informed by the World Uncertainty Index (Ahir et al., 2022) and grounded in the work of Barboza and Zilberman (2018) and Baker et al. (2016), the analysis reveals that uncertainty shocks lead to countercyclical effects on Brazilian macroeconomic indicators. Specifically, real GDP experiences a contraction of 0.004% over the three years following the shock, while Inflation initially rises almost 0.07% immediately after the shock and declines by almost 0.1% two quarters following the shock but subsequently rises. The exchange rate rises by 0.015% in the short term, indicating a depreciation of the Brazilian Real against the U.S. Dollar. Additionally, domestic uncertainty increases by 0.12% in response to global shocks. These findings underscore the influence of global uncertainty on Brazil’s economy and domestic economic conditions.