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Estimating the Credibility of Brazilian Monetary Policy using Forward Measures and a State-Space Model

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  • Flávio de Freitas Val
  • Wagner Piazza Gaglianone
  • Marcelo Cabus Klotzle
  • Antonio Carlos Figueiredo Pinto

Abstract

The objective of this study is to estimate the credibility of the monetary policy followed by the Central Bank of Brazil (BCB) during the period from January 2006 to July 2017. To estimate this credibility, we use the Kalman filter in two measures of inflation expectations (breakeven inflation and Focus survey) with a medium/long-term forecast horizon. The results indicate four shifts in the perceived credibility based on breakeven inflation: (i) decline in mid-2008, during the U.S. subprime mortgage crisis; (ii) relative stability from early 2009 to mid-2015; (iii) strong decline by the end of 2015; and (iv) recovery from mid-2016 until mid-2017 (end of the sample). The credibility measure based on the Focus survey showed a more regular behavior, reflecting the degree of anchoring of the survey-based inflation expectations for the considered horizon. By associating the estimated credibility with financial and macroeconomic variables, we have also found that credibility is relatively persistent and seems not to be influenced by short-run movements of such variables

Suggested Citation

  • Flávio de Freitas Val & Wagner Piazza Gaglianone & Marcelo Cabus Klotzle & Antonio Carlos Figueiredo Pinto, 2017. "Estimating the Credibility of Brazilian Monetary Policy using Forward Measures and a State-Space Model," Working Papers Series 463, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:463
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    File URL: https://www.bcb.gov.br/pec/wps/ingl/wps463.pdf
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    References listed on IDEAS

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    Cited by:

    1. Wagner Piazza Gaglianone, 2017. "Empirical Findings on Inflation Expectations in Brazil: a survey," Working Papers Series 464, Central Bank of Brazil, Research Department.

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