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Dynamic relations of the inertia of monetary policy: application to the Brazilian case by a Kalman approach

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  • Manuel Joaquim Da Natividade Silva
  • Gutemberg Hespanha Brasil
  • Ricardo Ramalhete Moreira

Abstract

The dynamic impacts of the monetary policy's inertia behaviour have not been empirically investigated by the related literature. This work analyses such impacts for the Brazilian monetary policy's inertia or gradualism from January 2005 to May 2013. The Kalman filter was adopted to extract the inertia series based on a monetary policy rule selected from a sample of specifications and estimated models. The findings show that an increase in Brazil's monetary policy inertia is followed by positive output gaps that cause inflation and inflationary expectation deviations. These results suggest the need for better calibration of the policy's gradualism to improve the inflation-targeting regime's credibility.

Suggested Citation

  • Manuel Joaquim Da Natividade Silva & Gutemberg Hespanha Brasil & Ricardo Ramalhete Moreira, 2016. "Dynamic relations of the inertia of monetary policy: application to the Brazilian case by a Kalman approach," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 9(1), pages 1-24.
    • Handle: RePEc:ids:ijmefi:v:9:y:2016:i:1:p:1-24
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