Credibility, Inflation Targets and Interest Rate: Long-Term Results for Brazil

Augusto César Klassen Amorim Alves de Lima and Ricardo Ramalhete Moreira

International Business Research, 2022, vol. 15, issue 8, 70

Abstract: This study carried out an empirical investigation into the relationship between the credibility of monetary policy – measured based on seven indicators – and the necessary variation of interest rates to control inflation, replicating the methods proposed by Mendonça and Souza (2007), extending them for the period 1999-2020. The results obtained confirm the hypothesis that higher levels of credibility allow the Central Bank to control inflation with lower interest rate increases. Furthermore, evidence was found that, although the credibility indicators show a better adjustment relative to the data – indicating a forward-looking nature in the conduction of basic interest rates –, among the reputation indicators, short-run inflationary results have a stronger weight in the decisions of monetary policy, suggesting that public expectations with short-memory remain relevant in the sample period.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:ibn:ibrjnl:v:15:y:2022:i:8:p:70

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