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Brazil: taming inflation expectations

In: Transmission mechanisms for monetary policy in emerging market economies

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  • Afonso S Bevilaqua

    (Banco Central do Brasil)

  • Mário Mesquita

    (Banco Central do Brasil)

  • André Minella

    (Banco Central do Brasil)

Abstract

This paper analyzes monetary policy implementation and convergence of inflation and inflation expectations to the targets in Brazil after the crisis in 2002. It covers the initial disinflation and subsequent economic recovery, followed by the inflation rebound and corresponding policy response, and finally the consolidation of disinflation in 2005-06. Monetary policy implementation and the overall improvement in macroeconomic fundamentals have contributed substantially to create a more stable and predictable environment, evidenced by signs of reduction in inflation uncertainty. Furthermore, econometric exercises indicate the critical role played by the targets as attractors for inflation expectations.

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This chapter was published in:

  • Bank for International Settlements, 2008. "Transmission mechanisms for monetary policy in emerging market economies," BIS Papers, Bank for International Settlements, number 35, 8.
    This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 35-06.

    Handle: RePEc:bis:bisbpc:35-06

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    References

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    1. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
    2. Afonso Bevilaqua & Rodrigo Azevedo, 2005. "Provision of FX hedge by the public sector: the Brazilian experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 119-26 Bank for International Settlements.
    3. Giordani, Paolo & Soderlind, Paul, 2000. "Inflation Forecast Uncertainty," Working Paper Series in Economics and Finance 384, Stockholm School of Economics, revised 09 Oct 2000.
    4. Martin Cerisola & Gaston Gelos, 2009. "What drives inflation expectations in Brazil? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 41(10), pages 1215-1227.
    5. Sergio A. L. Alves & Waldyr D. Areosa, 2005. "Targets and Inflation Dynamics," Working Papers Series 100, Central Bank of Brazil, Research Department.
    6. Minella, Andre & de Freitas, Paulo Springer & Goldfajn, Ilan & Muinhos, Marcelo Kfoury, 2003. "Inflation targeting in Brazil: constructing credibility under exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 1015-1040, December.
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    Cited by:
    1. Luis A.V. Catão & Adrian Pagan, 2011. "The Credit Channel and Monetary Transmission in Brazil and Chile: A Structured VAR Approach," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.), Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 5, pages 105-144 Central Bank of Chile.
    2. Cleomar Gomes da Silva & Maria Carolina da Silva Leme, 2008. "Inflation and Interest Rate: Which one is more persistent in Brazil?," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807181224190, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Márcio Holland & Edmar L. Bacha & Fernando M. Gonçalves, 2007. "Is Brazil Different? Risk, Dollarization, and Interest Rates in Emerging Markets," IMF Working Papers 07/294, International Monetary Fund.
    4. Carvalho, Fabia A. & Minella, André, 2012. "Survey forecasts in Brazil: A prismatic assessment of epidemiology, performance, and determinants," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1371-1391.
    5. André Roncaglia de Carvalho, 2013. "Inflation, structural change and conflict in post-disinflation Brazil: a structuralist appraisal," Working Papers, Department of Economics 2013_25, University of São Paulo (FEA-USP).
    6. Yusuf Soner Baskaya & Hakan Kara & Defne Mutluer, 2008. "Expectations, Communication and Monetary Policy in Turkey," Working Papers 0801, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    7. A. R. Pagan & Douglas Laxton & Luis Catão, 2008. "Monetary Transmission in an Emerging Targeter," IMF Working Papers 08/191, International Monetary Fund.
    8. Ramon Moreno, 2008. "Monetary policy transmission and the long-term interest rate in emerging markets," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 61-79 Bank for International Settlements.
    9. Edmar L. Bacha & Márcio Holland & Fernando M. Gonçalves, 2007. "Is Brazil Different? Risk, Dollarization, And Interest In Emerging Markets," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 028, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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