Finally, in Fig. 4, one can see the responses of the output gap to individual shocks to the
other variables. Notice that the reaction of the output gap is not close to the 5 percent
significance level in any of the cases. One may consider that the signs of the reactions of the
output gap to shocks in the interest rate and inflation rate reflects ultimately the workings of
the exchange rate devaluation. In the later case, the inflation rate goes up and the interest rate
increases to stabilize inflation and exchange rate. In the former, the interest rate shock leads to
a decrease in inflation,which responds quickly as seen before, that ends up causing exchange
rate devaluation. As a result, the output gap, which responds to the interest rate with a lag,
increases. This dynamic, however, does not display any reasonable statistical significance.