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Expectations Anchoring Indexes for Brazil using Kalman Filter: exploring signals of inflation anchoring in the long term

Fernando Oliveira () and Wagner Gaglianone ()

No 497, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Our objective in this paper is to build expectations anchoring indexes for inflation in Brazil that are fundamentally driven by the monetary authority’s capacity to anchor long-term inflation expectations vis-à-vis short-run inflation expectations. The expectations anchoring indexes are generated from a Kalman filter, based on a state-space model that also takes into account fiscal policy dynamics. The model’s signals are constructed using inflation expectations from the Focus survey of professional forecasters, conducted by the Central Bank of Brazil, and from the swap and federal government bond markets, which convey daily information of long-term inflation expectations. Although varying across specifications, the expectations anchoring indexes that we propose tend to display a downward trajectory, more clearly in 2009, and show a recovery starting in 2016 until the end of the sample (mid-2017).

Date: 2019-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Expectations anchoring indexes for Brazil using Kalman filter: Exploring signals of inflation anchoring in the long term (2020) Downloads
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