Target and Path Surprises in Brazil: Monetary Policy Announcements, Yield Curves, and Inflation Expectations

We study monetary policy surprises in Brazil using daily financial-market changes around 158 COPOM announcements from 2005 to 2024. We extract two orthogonal factors from interest-rate futures, interpreted as target and path components of monetary policy news, and estimate their effects on nominal yields, real yields, breakeven inflation, and Focus survey inflation expectations. Both factors move the yield curve, but with different timing: path surprises are priced rapidly, while target surprises are followed by more gradual adjustment around the release of COPOM minutes. Inflation expectations respond mainly at the medium-term horizon. In linear specifications, contractionary surprises reduce second-year expected inflation, consistent with expectations-anchoring or demand effects. Nonlinear specifications reveal important sign asymmetries: some surprises move expected inflation in the direction predicted by standard policy transmission, while others are consistent with announcements revealing information about the inflation outlook. Because COPOM decisions are announced after local markets close, the event window is daily rather than intraday; predictability tests show that the path factor is partly correlated with global financial news. The results should therefore be interpreted as event-study evidence on how Brazilian markets and forecasters respond to COPOM announcement surprises.