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Market Forecasts in Brazil: performance and determinants

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  • Fabia A. de Carvalho
  • André Minella

Abstract

This paper assesses a wide set of aspects of market forecasts in Brazil: rationality, predictive power, joint performance, epidemiology and determinants. Using the survey conducted by the Central Bank of Brazil (CBB) among professional forecasters during the inflation targeting period, the main results are as follows: i) credibility in Brazilian monetary policy has increased over time, since inflation targets are important to explain inflation expectations, and private agents perceive the CBB as following a Taylor-type rule that is consistent with the inflation targeting framework; ii) market inflation forecasts had similar or better forecast performance than ARMA-, VAR- and BVAR-based forecasts with standard information sets; iii) the joint performance of market forecasts has improved over the past years; iv) in the decomposition of forecast errors for inflation, interest rate and exchange rate, the common forecast error component prevails over the idiosyncratic component across survey respondents; v) top-five forecasters published by the CBB are influential in other respondents’ forecasts; vi) inflation forecasts are unbiased but not fully efficient; and vii) inflation forecast uncertainty is positively related to increasing inflation and to country-risk premium.

Suggested Citation

  • Fabia A. de Carvalho & André Minella, 2009. "Market Forecasts in Brazil: performance and determinants," Working Papers Series 185, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:185
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    File URL: http://www.bcb.gov.br/pec/wps/ingl/wps185.pdf
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    Cited by:

    1. Fritsche, Ulrich & Pierdzioch, Christian & Rülke, Jan-Christoph & Stadtmann, Georg, 2015. "Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding," International Journal of Forecasting, Elsevier, vol. 31(1), pages 130-139.
    2. 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.
    3. Daniela Kubudi & José Vicente, 2016. "A Joint Model of Nominal and Real Yield Curves," Working Papers Series 452, Central Bank of Brazil, Research Department.
    4. Carvalho, Carlos & Nechio, Fernanda, 2014. "Do people understand monetary policy?," Journal of Monetary Economics, Elsevier, pages 108-123.
    5. José Valentim Machado Vicente & Flávia Mourão Graminho, 2014. "Decompondo a Inflação Implícita," Working Papers Series 359, Central Bank of Brazil, Research Department.
    6. Leite, André Luís & Filho, Romeu Braz Pereira Gomes & Vicente, José Valentim Machado, 2010. "Forecasting the yield curve: A statistical model with market survey data," International Review of Financial Analysis, Elsevier, vol. 19(2), pages 108-112, March.

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