Can central bank credibility promote a substitution effect in the monetary transmission mechanism?

Helder de Mendonça, José Simão Filho and Elder Tiago C. de Souza

Applied Economics, 2023, vol. 55, issue 51, 5975-5990

Abstract: We analysed whether the credibility of the Central Bank of Brazil (CBB) influences the substitution effect between the interest channel and the inflation expectations channel. Specifically, based on a DSGE model, we investigate the effects of central bank credibility on key domestic macroeconomic variables. The results show that higher central bank credibility reduces the harmful effect of fighting inflation on domestic macroeconomic variables.

Date: 2023
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DOI: 10.1080/00036846.2022.2140777

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