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Inflation Targeting and Inflation Expectations: Evidence for Brazil and Turkey

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Author Info

  • Sumru Altug

    ()
    (Department of Economics, Koc University, CEPR)

  • Cem Cakmakli

    ()
    (Department of Economics, Koc University, Department of Quantitative Economics, University of Amsterdam)

Abstract

In this paper, we study the evolution of inflation expectations for two key emerging economies, Brazil and Turkey, using a reduced form model in a state-space framework, where the level of inflation is modeled explicitly. We match the survey-based inflation expectations and inflation targets set by the central banks of Brazil and Turkey with the predictions implied by the model in a statistically coherent way. Confronting these expectations with inflation targets leads to a statistical measure of the discrepancy between inflation expectations and the target inflation. The results indicate that inflation expectations are anchored more closely the inflation target set by the Central Bank for Brazil. By contrast, there is more evidence that inflation expectations deviate significantly from the target inflation set by the Central Bank for Turkey.

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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1413.

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Length: 38 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:koc:wpaper:1413

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Keywords: Inflation targeting; survey-based inflation expectations; forecasting; state space model.;

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  8. Sumru Altug & Erhan Uluceviz, 2014. "Identifying leading indicators of real activity and inflation for Turkey, 1988-2010: A pseudo out-of-sample forecasting approach," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing,CIRET, vol. 2014(1), pages 1-37.
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  18. Manuela Goretti, 2005. "The Brazilian Currency Turmoil of 2002: A Nonlinear Analysis," International Finance 0506001, EconWPA.
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