Canonical coupling
r = 0.833
The first monetary-versus-productive canonical pair reaches a correlation of 0.833 over the 2011:03–2026:05 window, indicating a strong common transmission direction across the high-dimensional system.
Scientific Article · Monetary Economics
When the Selic Reaches the Factory Floor
A high-dimensional DSGE-benchmarked canonical monetary transmission framework for Brazil.
Scientific Article
Full Article ↗The paper asks a concrete transmission question: how does a Selic tightening move from COPOM decisions into Brazilian industrial activity and corporate stress? Instead of following dozens of monetary and productive variables independently, the framework compresses each side into economically interpretable canonical states and then traces the timing, strength, and sectoral distribution of the shock.
Research question
How quickly and through which channels does Brazilian monetary tightening reach the productive sector, and do rate-change meetings transmit differently from rate-hold meetings?
Method
The framework combines regularized canonical correlation analysis, compact SVAR impulse responses, Rigobon-Sack heteroskedastic identification for COPOM CHANGE versus HOLD meetings, sectoral local projections, and a DSGE timing benchmark against the Banco Central do Brasil's SAMBA model.
Main findings
Peak industrial response
Month 9
The productive-sector state reaches its strongest response nine months after a Selic shock, with a broad response plateau from months 7 through 12.
HOLD-meeting variance
2.277×
COPOM HOLD meetings raise productive-sector variance by 2.277 times the non-COPOM baseline, exceeding the 1.744× effect estimated for rate-change meetings.
DSGE timing match
r = 0.959
The aggregate empirical response has the same month-9 activity peak as the SAMBA benchmark, with a response-shape correlation of 0.959.
Why it matters
The main result is that monetary transmission into Brazilian industry is measurable as a structured, high-dimensional process rather than a single aggregate lag. The framework also shows that the information content of a COPOM meeting can matter even when the policy rate is held unchanged, while sectoral responses reveal an early output channel followed later by profitability and leverage pressure.
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