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Monetary policy credibility and inflation in an emerging economy

Cleiton de Jesus (), Thiago Lopes () and Silvana Guimarães ()
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Cleiton de Jesus: State University of Feira de Santana
Thiago Lopes: Federal University of Sergipe
Silvana Guimarães: State University of Feira de Santana

Economics Bulletin, 2017, vol. 37, issue 2, 778-789

Abstract: In this paper, we investigate the relationship between monetary authority credibility and inflation in Brazil. We apply four credibility indices, which are available in the literature, to extract one factor using principal components methodology. This factor is considered a proxy to monetary policy credibility. The VAR approach is utilized to empirically investigate the dynamic relationship between credibility and inflation. The principal result of this paper suggest that the Brazilian monetary authority has lost credibility in recent years, specifically since 2010, and that an improvement in the level of credibility may reduce the rate of inflation.

Keywords: inflation; credibility; monetary policy. (search for similar items in EconPapers)
JEL-codes: E5 C5 (search for similar items in EconPapers)
Date: 2017-04-22
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