In this paper we do follow a non-stationary discrete approach to model the baseline rate in Brazil. The paper innovates in approaching the decisions in terms of a hike, maintenance or cut in the baseline rate rather than assume that it follows a continuous path. Our model seems to be parsimonious and forecast correctly 83% of the actual Copom decisions. The estimated parameters define a threshold to the Copom actions which is asymmetric, but finds no significant differences between high and low thresholds.
Monetary Policy; Taylor Rule; Nonstationary Discrete Approach
