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Credibility and Inflation Expectations: What we can tell from seven emerging economies?

Helder de Mendonça ()

Journal of Policy Modeling, 2018, vol. 40, issue 6, 1165-1181

Abstract: This study is a contribution to the literature concerning credibility and its effect on the distribution between forward-looking behavior and backward-looking behavior for formation of inflation expectations in the case of emerging economies. Based on data gathered from seven inflation targeting emerging economies (Brazil, Chile, Colombia, Mexico, Poland, South Africa, and Turkey), this paper analyzes how much the credibility associated with the inflation target contributes to anchoring expectations. The findings denote that although credibility is relevant to reduce inflation expectations, these countries present low monetary credibility and thus the backward-looking behavior is predominant for the formation of inflation expectations. Therefore, in order to improve the expectations channel of monetary policy in emerging economies, a policy of increasing transparency regarding inflation expectations is mandatory to the central banks’ task of anchoring inflation expectations.

Keywords: Credibility; Inflation expectations; Inflation targeting; Emerging economies (search for similar items in EconPapers)
JEL-codes: E52 E58 E31 E37 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jpolmo:v:40:y:2018:i:6:p:1165-1181