Effect of monetary policy credibility on the fear of floating: Evidence from Brazil

Gabriel Montes and Caio Ferrari Ferreira

Journal of Policy Modeling, 2019, vol. 41, issue 5, 981-1004

Abstract: Based on the argument that monetary policy credibility can reduce the fear of floating (FF), we analyze this hypothesis for Brazil. Since expectations play a key role under Inflation Targeting, we also analyze whether credibility can affect the expectations of financial markets about the FF of the Central Bank. The results show credibility can reduce the FF, and financial markets expect less intervention by the Central Bank when credibility is higher. Thus, policymakers must pay attention to the credibility of their policies, otherwise they may be misinterpreted regarding both the goals they pursue and how they conduct monetary policy.

Keywords: Fear of floating; Credibility; Monetary policy; Exchange rate (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 E62 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:41:y:2019:i:5:p:981-1004

DOI: 10.1016/j.jpolmod.2019.03.008

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