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Central bank opacity and inflation uncertainty: Effects in a large emerging economy

Ronaldo Trogo de Almeida (Department of Economics, Federal University of Juiz de Fora, Juiz de Fora, Brazil)
Wilson Luiz Rotatori Corrêa (Department of Economics, Federal University of Juiz de Fora, Juiz de Fora, Brazil)
Helder Ferreira de Mendonça (Department of Economics, Fluminense Federal University, Miguel Pereira, Brazil)
José Simão Filho (Department of Economics, Federal University of Juiz de Fora, Juiz de Fora, Brazil)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 8 May 2017

Abstract

Purpose

This paper relates to the literature on central bank (CB) transparency and inflation uncertainty. Considering that opacity is a possible source for inflation uncertainty the purpose of this paper is to test the hypothesis that increase in the dispersion of the degree of CB opacity generates higher levels of inflation uncertainty.

Design/methodology/approach

In a first step, the authors present a theoretical model that shows how increase in the dispersion of the degree of CB opacity creates higher levels of inflation uncertainty. In a second step, the authors test the assumption that increase in the dispersion of the degree of CB opacity generates higher levels of inflation uncertainty in the Brazilian economy.

Findings

The findings denote that CB transparency is an important tool for guiding public expectations and thus contributes to avoiding the uncertainty caused by CB preferences.

Originality/value

This paper extends the theoretical model presented by de Mendonça and Simão Filho (2007) by the theoretical link between the forecast error and opacity. Furthermore, because the theoretical underpinning relies on the CB guiding inflation expectations, the authors construct an uncertainty measure based on survey of forecasts where such expectations can be inferred through the variability in the forecast error.

Keywords

Citation

Almeida, R.T.d., Corrêa, W.L.R., de Mendonça, H.F. and Simão Filho, J. (2017), "Central bank opacity and inflation uncertainty: Effects in a large emerging economy", Journal of Economic Studies, Vol. 44 No. 2, pp. 313-328. https://doi.org/10.1108/JES-09-2015-0161

Publisher

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Emerald Publishing Limited

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