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Monetary policy credibility and inflation in an emerging economy

Author

Listed:
  • Cleiton Silva de Jesus

    (State University of Feira de Santana)

  • Thiago Rios Lopes

    (Federal University of Sergipe)

  • Silvana Dantas Guimarães

    (State University of Feira de Santana)

Abstract

In this paper, we investigate the relationship between monetary authority credibility and inflation in Brazil. We apply four credibility indices, which are available in the literature, to extract one factor using principal components methodology. This factor is considered a proxy to monetary policy credibility. The VAR approach is utilized to empirically investigate the dynamic relationship between credibility and inflation. The principal result of this paper suggest that the Brazilian monetary authority has lost credibility in recent years, specifically since 2010, and that an improvement in the level of credibility may reduce the rate of inflation.

Suggested Citation

  • Cleiton Silva de Jesus & Thiago Rios Lopes & Silvana Dantas Guimarães, 2017. "Monetary policy credibility and inflation in an emerging economy," Economics Bulletin, AccessEcon, vol. 37(2), pages 778-789.
  • Handle: RePEc:ebl:ecbull:eb-16-00758
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    inflation; credibility; monetary policy.;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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