Is There a Price Puzzle in Brazil? An Application of Bias-Corrected Bootstrap

Using data from the United States, Japan, Germany , United Kingdom and France, Sims (1992) found that positive innovations to short term interest rates led to sharp, persistent increases in the price level. The result was confirmed by other authors and, as a consequence of its non-expectable nature, was given the name "price puzzle" by Eichen baum (1992). In this paper I investigate the existence of a price puzzle in Brazil using the same type of estimation and benchmark identification scheme employed by Christiano et al. (2000). In a methodological improvement over these studies, I qualify the results with the construction of bias-corrected bootstrap confidence intervals. Even though the data does show the existence of a statistically significant price puzzle in Brazil, it lasts for only one quarter and is quantitatively immaterial