 A short term credibility index for central banks under inflation targeting: An application to BrazilAlain Hecq, João Victor Issler and Elisa Voisin Journal of International Money and Finance, 2024, vol. 143, issue C Abstract: Our goal is to provide econometric tools that could act as an almost real-time warning-system for central banks working under an Inflation-Targeting Regime. In any given month, it computes the probability that inflation will remain within the tolerance bounds set in advance by the Regime. So, our short-term index gives a proper response time for Central Banks, something long-term indices prevalent in the literature do not provide. Although we showcase Brazil in our application, our method could be broadly applied to other countries that operate under an Inflation-Targeting Regime. Our key statistic is the probability that inflation will be within the bounds in the next 1- 3- and 6-months ahead. It is based on predictive densities obtained from a mixed causal-noncausal autoregressive (MAR) model. We polish the accuracy of our key statistic using the receiver operating characteristic curve (ROC curve), something new in this literature. Keywords: Inflation rate; Forecasting; Central-bank credibility; Noncausal models; Predictive densities; Probabilities (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:143:y:2024:i:c:s0261560624000445 DOI: 10.1016/j.jimonfin.2024.103057 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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