Private Gross Fixed Investment, Gross Domestic Product and the monetary policy reference rate in Peru

Empirical evidence through a VAR model (2004 2023)

Abstract

The relationships between variables in the real and monetary sectors are essential for the design and planning of economic policy where variables converge to linear, homogeneous, and parsimonious behavior. The objective is to study the relationships between the monetary policy reference rate, gross domestic product (GDP), and private gross fixed investment for the quarterly period 2004-2023, obtained from the Central Reserve Bank of Peru; for this purpose, an autoregressive vector model is estimated. The results obtained show that the coefficient of private investment with GDP for the previous period is -0.006, with private investment for the previous period is 0.92, with the reference rate for the previous period was -342.9, and with the constant was 3610.5. It is important to mention that the R2 was 0.8517. By implementing the second objective of VAR modeling, variance decomposition, we were able to decompose the variance of endogenous variables into components that isolate the percentage of variability in an endogenous variable explained by one of the “innovations” for different prediction horizons. Finally, it was observed that the variables included in the regression had the expected signs and adequate statistical significance.