Central bank’s perception on inflation and inflation expectations of experts: Empirical evidence from Brazil
Abstract
Purpose
Due to the fact that studies on central bank communication in emerging countries are still scarce and there are few studies related to the influence that central bank’s perspectives about the state of the economy have on inflation expectations in emerging economies, the purpose of this paper is to contribute to the literature in the following aspects: it proposes an indicator of the central bank’s perception of inflation based on the minutes of the COPOM meetings, and, it analyzes the influence of central bank communication on expert inflation expectations through such indicator.
Design/methodology/approach
Due to the fact that the perception of the Central Bank of Brazil is not directly observable, it is measured through the fuzzy set theory by an indicator that captures the informational content of the minutes of the COPOM meetings. The empirical analysis uses ordinary least squares, the generalized method of moments and vector-autoregressive through impulse-response analysis.
Findings
The findings suggest that the expectations of financial market experts react according to the content of the information provided by the central bank, i.e., announcements cause deterioration of expectations in times of instability, and reduce inflation expectations when inflation is controlled. The results also support the idea that the credibility of inflation targeting plays a key role in determining inflation expectations.
Practical implications
This paper suggests a new approach on studies about central bank communication. The focus here is not on the effect of the announcements in terms of future monetary policy, but on the perception of the central bank in terms of inflation. This central bank’s perception reflects the optimistic or pessimistic view about the economic outlook and risk of inflation and this perception is considered by experts of financial markets.
Originality/value
For Brazil, there are no studies about the influence of communication through the minutes of the Brazilian Monetary Policy Committee meetings on inflation expectations. The authors develop an indicator in order to measure central bank’s perception of inflation based on the minutes of COPOM meetings.
Keywords
Acknowledgements
JEL Classification — E31, E52, E58
Citation
Montes, G.C. and Nicolay, R.T.d.F. (2015), "Central bank’s perception on inflation and inflation expectations of experts: Empirical evidence from Brazil", Journal of Economic Studies, Vol. 42 No. 6, pp. 1142-1158. https://doi.org/10.1108/JES-07-2014-0116
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited