Economic policies, macroeconomic environment and entrepreneurs' expectations: Evidence from Brazil

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.

Citation

Caldas Montes, G. and Cesar Albuquerque Bastos, J. (2013), "Economic policies, macroeconomic environment and entrepreneurs' expectations: Evidence from Brazil", Journal of Economic Studies, Vol. 40 No. 3, pp. 334-354. https://doi.org/10.1108/01443581311283952