Market Expectations and the Credibility of Monetary Policy

Market Expectations and the Credibility of Monetary Policy

• Autor
• Sebastiao Oliveira
• Co-autores
• Pedro Simon
• Resumo

• We provide novel evidence that central bank credibility affects how market expec- tations react to contractionary monetary policy surprises. Exploiting the Brazilian central bank’s loss of credibility under President Dilma Rousseff (2011–2014) and high-frequency data on exchange rate and inflation expectations, we show that when credibility is high, contractionary surprises lead to immediate declines in inflation expectations and anticipated appreciations of exchange rates. The opposite obtains when credibility is low. Our findings indicate that the market’s interpretation of mon- etary policy is state-dependent, shaped by the perceived credibility of the central bank.

• Palavras-chave
• Credibility, market expectations, monetary policy
• Modalidade
• Comunicação oral
• Área Temática
• Macrofinanças

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