This paper applied the DSGE model developed by Christiano et al. (2010) to the Brazilian data in the recent period in order to analyze the relationship between monetary policy and market risk premium. This model was chosen because it incorporates the financial sector and bank loans to entrepreneurs into a new keynesian framework with sticky prices and wages. The results indicate that the risk premium and investment shocks are relevant to explain the business cycle in Brazil. The risk premium is a transmission channel for the monetary policy through the credit market. It was also found that the Central Bank reacted in disagreement with the usual policy recommendations in the episode of the recent global financial crisis.
DSGE Model; Bayesian Estimation; Financial Frictions; Economic Fluctuations; Credit Market
