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Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile, and Mexico?

Michiel De Pooter, Patrice Robitaille, Ian Walker and Michael Zdinak
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Patrice Robitaille: Federal Reserve Board of Governors
Ian Walker: Federal Reserve Board of Governors
Michael Zdinak: Federal Reserve Board of Governors

Authors registered in the RePEc Author Service: Andrew Theo Levin ()

International Journal of Central Banking, 2014, vol. 10, issue 2, 337-400

Abstract: In this paper, we consider whether long-term inflation expectations have become better anchored in Brazil, Chile, and Mexico. We do so using survey-based measures as well as financial-market-based measures of long-term inflation expectations, where we construct the market-based measures from daily prices on nominal and inflation-linked bonds. This paper is the first to examine the evidence from Brazil and Mexico, making use of the fact that markets for long-term government debt have become better developed over the past decade. We find that inflation expectations have become much better anchored over the past decade in all three countries, as a testament to the improved credibility of the central banks in these countries when it comes to keeping inflation low. That said, one-year inflation compensation in the far future displays some sensitivity to at least one macroeconomic data release per country. However, the impact of these releases is small and it does not appear that investors systematically alter their expectations for inflation as a result of surprises in monetary policy, consumer prices, or real activity variables. Finally, long-run inflation expectations in Brazil appear to have been less well anchored than in Chile and Mexico.

JEL-codes: D84 E31 E43 E44 E52 E58 G14 (search for similar items in EconPapers)
Date: 2014
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