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This paper lays out a structural model that incorporates key features of monetary transmission in typical emerging-market economies, including a bank-credit channel and the role of external debt accumulation on country risk premia and exchange rate dynamics. We use an SVAR representation of the model to study the monetary transmission in Brazil. We find that interest rate changes have swifter effects on output and inflation compared to advanced economies and that exchange rate dynamics plays a key role in this connection. Importantly, the response of inflation to monetary policy shocks has grown stronger and the output-inflation tradeoff improved since the introduction of inflation targeting.

Inflation (Finance) --- Transmission mechanism (Monetary policy) --- Monetary policy --- Econometric models. --- Monetary management --- Monetary transmission mechanism --- Economic policy --- Currency boards --- Money supply --- Finance --- Natural rate of unemployment --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Production and Operations Management --- Price Level --- Deflation --- Macroeconomics: Production --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Macroeconomics --- Currency --- Foreign exchange --- Monetary economics --- Exchange rates --- Output gap --- Real exchange rates --- Bank credit --- Prices --- Production --- Economic theory --- Credit --- Brazil