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What drives inflation expectations in Brazil? An empirical analysis

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  • Martin Cerisola
  • Gaston Gelos

Abstract

This study examines the macro-economic determinants of survey inflation expectations in Brazil since the adoption of inflation targeting in 1999. The results suggest that the inflation-targeting framework has helped anchor expectations, with the dispersion of inflation expectations declining considerably, particularly during periods of high uncertainty. We also find that apart from the inflation target, the stance of fiscal policy, as proxied by the ratio of the consolidated primary surplus to GDP, has been instrumental in shaping expectations. The importance of past inflation in determining expectations appears to be relatively low, and the overall empirical evidence does not suggest the presence of substantial inertia in the inflation process.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:10:p:1215-1227 DOI: 10.1080/00036840601166892
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    1. Gelos, Gaston & Ustyugova, Yulia, 2017. "Inflation responses to commodity price shocks – How and why do countries differ?," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 28-47.
    2. Castelnuovo, Efrem, 2010. "Tracking U.S. inflation expectations with domestic and global indicators," Journal of International Money and Finance, Elsevier, vol. 29(7), pages 1340-1356, November.
    3. Roman Horváth & Jakub Matějů, 2011. "How Are Inflation Targets Set?," International Finance, Wiley Blackwell, vol. 14(2), pages 265-300, June.
    4. Tomasz Lyziak, 2016. "Financial crisis, low inflation environment and short-term inflation expectations in Poland," Bank i Kredyt, Narodowy Bank Polski, vol. 47(3), pages 285-300.
    5. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    6. José Valentim Machado Vicente & Flávia Mourão Graminho, 2014. "Decompondo a Inflação Implícita," Working Papers Series 359, Central Bank of Brazil, Research Department.
    7. Areosa, Waldyr Dutra & McAleer, Michael & Medeiros, Marcelo C., 2011. "Moment-based estimation of smooth transition regression models with endogenous variables," Journal of Econometrics, Elsevier, vol. 165(1), pages 100-111.
    8. 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.
    9. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    10. Michael Debabrata Patra & Partha Ray, 2010. "Inflation Expectations and Monetary Policy in India; An Empirical Exploration," IMF Working Papers 10/84, International Monetary Fund.
    11. Mick Silver, 2006. "Core Inflation Measures and Statistical Issues in Choosing Among Them," IMF Working Papers 06/97, International Monetary Fund.
    12. Sergio A. L. Alves & Waldyr D. Areosa, 2005. "Targets and Inflation Dynamics," Working Papers Series 100, Central Bank of Brazil, Research Department.
    13. Snezana Eminidou & Marios Zachariadis & Elena Andreou, 2017. "Inflation Expectations and Monetary Policy Surprises," 2017 Meeting Papers 919, Society for Economic Dynamics.
    14. Carlos Hamilton V Araujo & Wagner P Gaglianone, 2010. "Survey-based inflation expectations in Brazil," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy and the measurement of inflation: prices, wages and expectations, volume 49, pages 107-114 Bank for International Settlements.
    15. Borraz, Fernando & Gianelli, Diego, 2010. "Un Análisis de Comportamiento a Nivel de Agente de la Encuesta de Expectativas de Inflación del BCU
      [A Behavior Analysis of the BCU Inflation Expectation Survey]
      ," MPRA Paper 27713, University Library of Munich, Germany.
    16. Luis Fernando Escobar Patiño & Pablo Hernán Mendieta Ossio, 2006. "Inflación y depreciación en una economía dolarizada: el caso de Bolivia," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(1), pages 1-39, enero-mar.
    17. Hiroyuki Taguchi & Chizuru Kato, 2011. "Assessing the performance of inflation targeting in East Asian economies," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 25(1), pages 93-102, May.
    18. Afonso S Bevilaqua & Mário Mesquita & André Minella, 2008. "Brazil: taming inflation expectations," BIS Papers chapters,in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 139-158 Bank for International Settlements.
    19. Montes, Gabriel Caldas, 2009. "Política monetária, inflação e crescimento econômico: a influência da reputação da autoridade monetária sobre a economia," Revista Economia e Sociedade, Instituto de Economia, Universidade Estadual de Campinas (UNICAMP), vol. 37, pages 1-23, August.
    20. Joanna Mackiewicz­‑Łyziak, 2014. "Wpływ długu publicznego na oczekiwania inflacyjne konsumentów w Europie," Gospodarka Narodowa, Warsaw School of Economics, issue 5, pages 113-132.
    21. Juraj Antal & Zuzana Antonicova & Jan Babecky & Michal Hlavacek & Tomas Holub & Roman Horvath & Jarek Hurnik & Ondra Kamenik & Karel Musil & Jiri Podpiera & Lubos Ruzicka & Michal Skorepa & Katerina S, 2008. "Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, number 01 edited by Katerina Smidkova, June.
    22. Luiz De Mello & Diego Moccero, 2009. "Monetary Policy and Inflation Expectations in Latin America: Long-Run Effects and Volatility Spillovers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(8), pages 1671-1690, December.

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