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Article
Publication date: 9 November 2015

Gabriel Caldas Montes and Rodolfo Tomás da Fonseca Nicolay

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…

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.

Details

Journal of Economic Studies, vol. 42 no. 6
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 24 September 2020

Diego Ferreira, Andreza Aparecida Palma and Marcos Minoru Hasegawa

This paper analyzes the potential presence of time-varying asymmetries in the preference parameters of the Central Bank of Brazil during the inflation targeting regime.

Abstract

Purpose

This paper analyzes the potential presence of time-varying asymmetries in the preference parameters of the Central Bank of Brazil during the inflation targeting regime.

Design/methodology/approach

Given the econometric issues inherent to classical time-varying parameter (TVP) regressions, a Bayesian estimation procedure is implemented in order to provide more robust parameter estimates. A stochastic volatility specification is also included to take into account the potential presence of conditional heteroskedasticity.

Findings

The obtained results show that the reduced form and structural parameters were not constant during the period considered. Moreover, the subsequent analysis of the preference parameters provided evidences of short periods in which asymmetry was an important feature to the conduction of monetary policy in Brazil. Yet, during most of the sample period, the loss function was considered to be symmetrical.

Originality/value

This paper aims to contribute to the rather scarce monetary debate on time-varying central bank preferences. The study of Lopes and Aragón (2014) is, to the best of the authors’ knowledge, the only study for Brazil considering specifically TVPs. The authors applied Kalman filter estimation to data from 2000:M1 to 2011:M12. Despite the similar structure of TVPs, the present paper extends the latter study by controlling for stochastic volatility. Ignoring conditional heteroskedasticity might lead to spurious movements in time-varying variables and inaccurate inference (Hamilton, 2010). Thus, the stochastic volatility specification is included to take this issue into account. The authors follow the theoretical scheme put forward by Surico (2007) and Aragón and Portugal (2010), in which the economy is modeled from a New Keynesian perspective and the central bank loss function is assumed to be asymmetric regarding the responses to inflation and output deviations from their targets. On the empirical side, the authors propose a TVP univariate regression with stochastic volatility for the Brazilian reduced-form reaction function, following closely the Bayesian econometric procedure developed by Nakajima (2011). Given the nonlinear non-Gaussian nature of the TVP regression with stochastic volatility, the choice of a nonlinear Bayesian approach using the Markov chain Monte Carlo (MCMC) method is justified due to the intractability of the associated likelihood function (Primiceri, 2005). Finally, based on the theoretical model specification, the authors intend to recover the central bank preference parameters as to further evaluate the degree of asymmetry and its potential time-variation under the inflation targeting regime.

Details

Journal of Economic Studies, vol. 48 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 4 March 2019

Rodolfo Nicolay and Ana Jordânia de Oliveira

Studies about the determinants of the clarity of central bank communication are still scarce. To the authors’ knowledge, there are no studies regarding emerging economies…

Abstract

Purpose

Studies about the determinants of the clarity of central bank communication are still scarce. To the authors’ knowledge, there are no studies regarding emerging economies. The purpose of this paper is to contribute to the literature in the following aspects: to analyze the determinants of the clarity of the central bank communication in an inflation targeting emerging economy; observe the influence of inflation volatility over the clarity; and observe the effect of the monetary policy signaling over the clarity.

Design/methodology/approach

The work uses readability indexes to measure the clarity of central bank communication. The empirical analysis uses ordinary least squares and the Generalized Method of Moments with one- and two-step estimations.

Findings

The findings suggest the inflation volatility reduces the clarity of central bank communication. Moreover, the monetary policy signaling also affects the clarity, but the effect depends on the direction of the signal.

Practical implications

This paper observes the determinants of the clarity considering an emerging economy environment. The clarity of central bank communications is an important tool to access transparency. Hence, the analysis of what determines the clarity of central bank communication is a debate about the level of transparency accessed by the central bank.

Originality/value

There are no studies about the determinants of the clarity of central bank communication in emerging economies. Moreover, the novelty are the effects of inflation volatility and monetary policy signaling over the clarity.

Details

Journal of Economic Studies, vol. 46 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 18 January 2013

Helder Ferreira de Mendonça and Ivando Faria

The purpose of this paper is to make an analysis of the Brazilian experience after the adoption of inflation targeting concerning the effects caused by the new practices of

Abstract

Purpose

The purpose of this paper is to make an analysis of the Brazilian experience after the adoption of inflation targeting concerning the effects caused by the new practices of transparency and communication in the monetary policy.

Design/methodology/approach

Changes in the financial market's expectations due to monetary policy actions are analyzed based on methodologies proposed by Cook and Hahn and Kuttner. Daily data from transactions in the interbank deposit futures market of the Securities, Commodities and Futures Exchange (BMF&BOVESPA) are used for the period July 1999‐January 2009. Two sub‐periods are also considered: the “maturation period” – the first phase of the effects caused by an increase in central bank transparency; and the “wisdom period” – the second phase in the financial market's perception regarding an environment with more transparency.

Findings

The findings are in consonance with the idea that an increase in central bank transparency and communication improves the efficiency of expectations hypothesis of the term structure of interest rate and the anticipation of changes in the interest rate target.

Originality/value

This study offers some new insights into how central bank communication improves the efficiency of the monetary policy for developing countries, which have adopted inflation targeting.

Details

Journal of Economic Studies, vol. 40 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 3 August 2010

Helder Ferreira de Mendonça and Manoel Carlos de Castro Pires

This paper aims to study a monetary policy problem, where concerns with price stability and with the impact of interest rates on public debt are simultaneously addressed.

1771

Abstract

Purpose

This paper aims to study a monetary policy problem, where concerns with price stability and with the impact of interest rates on public debt are simultaneously addressed.

Design/methodology/approach

The problem is analytically approached under a new Keynesian monetary policy framework to which a budget constraint is added and, subsequently, the model's implications are empirically illustrated by characterizing Brazilian policies.

Findings

The findings denote the existence of a trade‐off between inflation target and public debt stability. Therefore the determination of an inflation target cannot neglect this trade‐off. Furthermore, the empirical analysis from the Brazilian case shows that the Central Bank of Brazil takes into consideration public debt when determining the interest rate.

Practical implications

The determination of the interest rate in an inflation targeting regime must consider the public debt stability.

Originality/value

This paper makes a contribution on the theme of consistency between monetary policy and fiscal equilibrium.

Details

Journal of Economic Studies, vol. 37 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 8 May 2017

Claudio Oliveira De Moraes and Helder Ferreira de Mendonça

The purpose of this paper is to discuss more efficient mechanisms of regulation in the financial system.

Abstract

Purpose

The purpose of this paper is to discuss more efficient mechanisms of regulation in the financial system.

Design/methodology/approach

The authors developed a theoretical two-period model of financial flows (FFs) that considers households, banks, and a social planner.

Findings

It is important to highlight that different from other studies that do not distinguish between financial crisis and financial instability, the authors assume financial instability does not mean crisis, but represents a deviation in the behavior of the aggregate financial intermediation and in the financial operations of each bank from the equilibrium.

Practical implications

The practical implication of the model is the proposition of an efficient policy for financial stability based on forward-looking financial regulations.

Social implications

An important result is that bank failures occur when banks do not maintain sufficient resources to support the liquidity constraint from the interbank market. Another result is that the central bank reacts, via exchange of reserves with the market, to financial instability. This behavior on the part of the central bank is inefficient because the banks will assume that in the case of failure they will be “saved;” thus it creates an adverse incentive (moral hazard) that can amplify the risk over the entire financial system.

Originality/value

The originality of the model is the proposition of an efficient policy for financial stability based on a forward-looking financial regulation. In this strategy the regulator acts in advance (ex ante) to minimize the mismatch of FFs in relation to the flow balance. This manner of acting is a counterpoint to the financial regulation based on capital requirement.

Details

Journal of Economic Studies, vol. 44 no. 2
Type: Research Article
ISSN: 0144-3585

Keywords

Expert briefing
Publication date: 1 June 2022

Although fintechs may increase efficiency and competition in the financial system, they may also pose risks to the banking sector if they are poorly regulated. In March…

Details

DOI: 10.1108/OXAN-DB270323

ISSN: 2633-304X

Keywords

Geographic
Topical
Article
Publication date: 31 August 2012

Helder Ferreira de Mendonça, Délio José Cordeiro Galvão and Renato Falci Villela Loures

The purpose of this paper is to see if a difference exists between the impact of the subprime crisis on countries with more transparency and more regulated finance than on…

2103

Abstract

Purpose

The purpose of this paper is to see if a difference exists between the impact of the subprime crisis on countries with more transparency and more regulated finance than on others. A further objective is to explain the success of the Brazilian case in avoiding the financial crisis and to show empirical evidence for the presence of market discipline.

Design/methodology/approach

The paper offers a regulation and transparency index (RTI) based on 37 countries. Considering RTI and stock market index of developed economies, BRICs economies, and developing economies, cross‐country estimations are made. Furthermore, the analysis for market discipline in the Brazilian case is based on GMM panels, taking into account market discipline through subordinated debt holders (debentures).

Findings

The results indicate that a higher degree of regulation and transparency is related to a higher return and a lower volatility in the stock market during the subprime crisis. Moreover, one of the main reasons for the apparent success of the Brazilian case in facing the crisis is the combination of a strong regulation of the financial system and the presence of market discipline.

Practical implications

Transparency of information by the banking sector is relevant for the regulation of the financial system.

Originality/value

The paper presents new insights for the literature on financial regulation and transparency of information in the search for a framework capable of avoiding financial crisis.

Details

Journal of Economic Studies, vol. 39 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 1 January 2007

Elvira Cruvinel Ferreira Ventura

The purpose of the paper is to analyze the dissemination of structural arrangements relating to the Corporate Social Responsibility (CSR) movement within the field of

Abstract

The purpose of the paper is to analyze the dissemination of structural arrangements relating to the Corporate Social Responsibility (CSR) movement within the field of banking organizations in Brazil. The paper is part of the research results to understand the dynamics of institutionalizing CSR, which is understood as a movement of capitalism displacement. The structural arrangements under study are: the specific areas created to address the CSR topic, social balance sheet and links on CSR in organizational websites ‐ considered as “tests” to include organizations in the movement. It was found that there is an isomorphic movement in the field where the major banks take the tests, having the arrangements ‐ and soon the large banks joined the movement, adopting different stances. Wholesale banks, however, have still to do the same thing, which ratifies the process as a search for legitimacy, the core argument of the theory.

Details

Social Responsibility Journal, vol. 3 no. 1
Type: Research Article
ISSN: 1747-1117

Keywords

Article
Publication date: 30 August 2013

Gabriel Caldas Montes and Caroline Cabral Machado

The purpose of this paper is to present a theoretical model and empirically verifies the transmission of monetary policy through the credit channel in Brazil. The study…

Abstract

Purpose

The purpose of this paper is to present a theoretical model and empirically verifies the transmission of monetary policy through the credit channel in Brazil. The study verifies if the monetary policy, the economic activity and the maturity of the inflation targeting regime affect the supply of credit.

Design/methodology/approach

The paper offers a review of the literature concerning inflation targeting credibility and the transmission mechanism of monetary policy through the credit channel, it develops a theoretical model based on Bernanke and Blinder and Ferreira and it seeks empirical evidence for the Brazilian economy using ordinary least squares, generalized method of moments and vector autoregressive.

Findings

The estimates indicate that the supply of credit is stimulated when the economy heats up, when the monetary authority reduces the interest rate and when the credibility increases. The evidence also indicate that the supply of credit is affected by the variables of the model, economic activity and employment are affected by monetary policy and the supply of credit exerts influence on both employment and output gap.

Research limitations/implications

An important implication of this study is that, in inflation targeting emerging economies, such as that of Brazil, following a committed monetary policy to price stability which increases the credibility of the regime of inflation targeting and promoting macroeconomic stability represents a good strategy for improving the volume of lending to the private sector, thus stimulating economic activity and employment. What the findings do indicate is that developing credibility is crucial for emerging economies that are trying to grow, but with inflation being kept under control.

Originality/value

The paper presents the following theoretical and empirical contributions: the model incorporates the effect that the credibility of the inflation targeting regime has on the supply of credit and, the econometric approach provides evidence that the monetary policy, the economic activity and the process of anchoring of inflation expectations affect the supply of credit in Brazil. Moreover, the paper finds evidence that the credit channel acts as a transmission mechanism of monetary policy to the economy.

Details

Journal of Economic Studies, vol. 40 no. 4
Type: Research Article
ISSN: 0144-3585

Keywords

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