A note on the dependence of the capital stock in Brazil

This paper contributes to the discussion of public and private investment in Brazil by analyzing how internal and external shocks are transmitted to changes in the capital stock. The baseline specification is estimated using a Time-Varying Parameter VAR with dynamic structures, following Gabauer and Gupta (2018). The aim is to measure the magnitude and direction of pairwise spillovers, accounting for their persistence across different time horizons. Results from April 2007 to September 2024 indicate that changes in the capital stock mostly serve as net shock receivers. Most of this shock transmission occurs at frequencies longer than one year. This study also highlights the specific link between changes in the capital stock and economic growth. To validate the main findings, this paper employs sensitivity tests on the forecast horizon, the lag order, the forgetting factors, the frequency partition, and a 200-draw randomization over the hyperparameters. Based on additional tests, the proposed model appears stable across forecast horizons, as evidenced by the TCI's low variability, whereas the pairwise results involving the SELIC rate and inflation should be viewed with greater caution, as they are less robust.