SAMBA: Stochastic Analytical Model with a Bayesian Approach

Abstract

We develop and estimate a DSGE model for the Brazilian economy as part of the macroe-
conomic modeling framework of the Central Bank of Brazil. The model combines the building blocks of standard DSGE models (e.g., price and wage rigidities and adjustment costs) with the following features that better describe the Brazilian economy: (i) a fiscal authority pursuing an explicit target for the primary surplus; (ii) administered or regulated prices as part of the consumer price index; (iii) external nance for imports,which amplies the eects of changes in external nancial conditions on the economy;and (iv) imported goods used in the production of intermediate goods. It also includes the presence of nancially constrained households. We estimate the model with Bayesian techniques, using data since 1999, when in ation targeting was implemented in Brazil.Evaluation based on impulse response functions, moment conditions, variance error decomposition, and initial forecasting exercises suggests that the model can be a useful toolfor policy analysis and forecasting.