Central Bank of Costa Rica's Credibility Indexes on the Transition to Inflation Targeting

Alonso Alfaro-Ureña () and Carlos Monge-Badilla ()
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Alonso Alfaro-Ureña: Economic Division, Central Bank of Costa Rica
Carlos Monge-Badilla: Department of Economic Research, Central Bank of Costa Rica

No 1303, Documentos de Trabajo from Banco Central de Costa Rica

Abstract: This paper computes six indexes that measure the monetary policy credibility of the Banco Central de Costa Rica, in its current transition to Inflation Targeting. The indexes, developed by Cecchetti and Krause (2002), Mendonça (2004), Sicsú (2005), Nahon and Meurer (2009), and a new one proposed in this paper, were calculated using the Monthly Survey of Inflation and Exchange Rate Expectations. All indexes show similar patterns over the sample, and the same happens when indexes for each of the strata of the sample are computed. The results show three periods where credibility has increased, with subsequent falls. The international and domestic conditions in which these movements happened are described in the paper. There is evidence that the monetary policy rate changes precede movements of the credibility indexes and not the other way around. There is also evidence of simultaneity of the inflation series with respect to the credibility indexes. The last data points show a stagnation of credibility as measured by the indexes. ***Resumen: Esta investigación presenta seis índices de credibilidad de la política monetaria del Banco Central de Costa Rica, en su transición hacia Metas de Inflación. Los índices, diseñados por Cecchetti y Krause (2002), Mendonça (2004), Sicsú (2005), Nahon y Meurer (2009) y uno nuevo propuesto en este estudio, fueron calculados a partir de la Encuesta Mensual de Expectativas de Inflación y de Variación del Tipo de Cambio. Todos los índices presentan la misma evolución a lo largo del periodo analizado, y lo mismo ocurre cuando se calculan índices separados para cada estrato de individuos consultado en la muestra. Los resultados permiten identificar tres períodos de aumento en la credibilidad con subsecuentes caídas, movimientos para los cuales se describe la coyuntura nacional e internacional en que ocurrieron. Se presenta evidencia que respalda la hipótesis de que la tasa de política monetaria antecede temporalmente cambios en los índices de credibilidad y no a la inversa. Existe además evidencia estadística de que cambios en la inflación y los índices de credibilidad ocurren simultáneamente. Los últimos datos disponibles sugieren un estancamiento de la credibilidad medida por todos los índices.

Keywords: Credibility; Monetary policy; Inflation targeting; Central bank, Credibilidad, Política monetaria, Metas de inflación, Banca central (search for similar items in EconPapers)
JEL-codes: D84 E31 E58 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-01
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Persistent link: https://EconPapers.repec.org/RePEc:apk:doctra:1303

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