Economic policies, macroeconomic environment and entrepreneurs' expectations

Gabriel Montes and Júlio Cesar Albuquerque Bastos

Journal of Economic Studies, 2013, vol. 40, issue 3, 334-354

Abstract: Purpose - The purpose of this paper is to analyze the influence of macroeconomic variables and economic policies on expectations and confidence of entrepreneurs. It provides an econometric analysis of the expectation transmission channel under inflation targeting in Brazil, emphasizing the effect of inflation targeting credibility on the business confidence of industrial entrepreneurs. Design/methodology/approach - Based on ordinary least square (OLS), generalized method of moments (GMM) and vector autoregression (VAR), the paper provides empirical evidence about the influence of inflation targeting credibility and macroeconomic policies on expectations and confidence of entrepreneurs and, as a consequence, on industrial production. Findings - The evidence for the Brazilian economy suggest that monetary and fiscal policies as well as the credibility of the monetary regime affect economic activity by their impact on expectations of entrepreneurs. Research limitations/implication - Development of macroeconomic stability is important to the expectations formed by entrepreneurs and, therefore, for industrial production. In particular, inflation targeting credibility stimulates industrial production, since it increases the confidence of entrepreneurs about the functioning of the economy and their businesses. Originality/value - The results suggest new insights about the influence of economic policies on the real side of the economy, pointing out that the conduct of economic policies in emerging countries with inflation targets are likely to affect the expectations of entrepreneurs and therefore their production decisions.

Keywords: Expectation; Entrepreneur; Credibility; Inflation targeting; Production; Brazil; Entrepreneurialism; Economic policy (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:v:40:y:2013:i:3:p:334-354

DOI: 10.1108/01443581311283952

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