A Vector Autoregressive Model for the Chilean Financial Market

Abstract

Using various econometric techniques, the paper estimates the impact that interest-rate-based stabilization policy has on asset prices. To this end, vector autoregresive (VAR), as well as cointegration, error correction, and bayesian models (BVAR) were used. The results show that the disequilibria in these markets resulting from different shocks, disappear only one year after they occur. These findings suggest that there may be some benefits associated to a monetary policy aimed at short run financial market stabilization. This might avoid strong and persistent disequilibria in equity and exchange markets.