Central bank’s perception on inflation and inflation expectations of experts

2015 ◽  
Vol 42 (6) ◽  
pp. 1142-1158 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Rodolfo Tomás da Fonseca Nicolay
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
Ordinary Least Squares ◽  
Response Analysis ◽  
Inflation Expectations ◽  
Content Type ◽  
Vector Autoregressive ◽  
Central Bank Communication

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.

Inflation volatility, monetary policy signaling and clarity of the central bank communication

2019 ◽  
Vol 46 (2) ◽  
pp. 266-283 ◽  
Author(s):  
Rodolfo Nicolay ◽  
Ana Jordânia de Oliveira
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Emerging Economies ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
Emerging Economy ◽  
Ordinary Least Squares ◽  
Content Type ◽  
Inflation Volatility ◽  
Central Bank Communication

PurposeStudies 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/approachThe 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.FindingsThe 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 implicationsThis 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/valueThere 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.

Effects of reputation and credibility on monetary policy: theory and evidence for Brazil

2014 ◽  
Vol 41 (3) ◽  
pp. 387-404 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Julio Cesar Albuquerque Bastos
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Generalized Method Of Moments ◽  
Ordinary Least Squares ◽  
Monetary Authority ◽  
Content Type ◽  
Vector Autoregressive ◽  
Policy Theory ◽  
Inflation Bias ◽  
Empirical Field

Purpose – The purpose of this paper is to demonstrate that both the reputation of the monetary authority and the credibility of the regime of inflation targeting are important to reduce the inflation bias and the effort of the monetary authority in an emerging economy. Design/methodology/approach – The paper develops a model which shows that the gain of credibility reduces the effort of the monetary authority in the conduct of monetary policy. The paper presents an econometric analysis for Brazil through ordinary least squares, generalized method of moments (GMM), system of equations by GMM and vector autoregressive. Findings – The findings suggest that the reputation of the monetary authority is important to the improvement of credibility, and the gains of credibility reduce the effort of the monetary authority in the conduct of monetary policy, reducing the variations of the monetary base. Originality/value – In the theoretical field, the study develops a model which shows that credibility is important to reduce both the inflation bias and the efforts of the monetary authority in the conduct of monetary policy. In the empirical field: first, it proposes a new index of reputation for the monetary authority; second, it demonstrates that the gain of reputation improves credibility, but also that attempts to exploit the output-inflation trade-off reduces credibility; third, the analysis found that the gains of credibility reduce the efforts of the monetary authority in the conduct of monetary policy.

Central bank transparency, inflation targeting and monetary policy: a panel data approach

2018 ◽  
Vol 45 (6) ◽  
pp. 1159-1174 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Cristiane Gea
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Panel Data ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Content Type ◽  
Central Bank Transparency ◽  
Policy Interest

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy. Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries. Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries. Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy. Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

scholarly journals An Empirical Analysis of the Monetary Policy Reaction Function

2018 ◽  
Vol 10 (3) ◽  
pp. 30
Author(s):  
Felix S. Nyumuah
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Policy Instruments ◽  
Ordinary Least Squares ◽  
Policy Rule ◽  
Reaction Functions ◽  
Expected Inflation ◽  
Monetary Policy Reaction Function ◽  
Consistent Response

Monetary policy decisions usually follow a policy rule which shows a consistent response of policy instruments to variations in inflation and economic growth. The aim of this study is to establish the nature of monetary policy in developing countries through the analysis of policy reaction functions. This study uses macroeconomic data from Ghana, a typical developing country. The study employs the Dynamic Ordinary Least Squares Estimation techniques and finds the central bank to follow a backward-looking Taylor rule. The evidence is that the central bank follows some form of policy rule and focuses more on past inflation relative to current or expected inflation. The results also indicate that the Bank of Ghana has been pursuing inflation targeting monetary policy. The central bank follows an inflation targeting rule allowing for output stabilisation. The exchange rate also plays a role in this stabilization effort.

Time-varying monetary policy reaction function under asymmetric preferences: revisiting the Brazilian inflation targeting experience

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Diego Ferreira ◽  
Andreza Aparecida Palma ◽  
Marcos Minoru Hasegawa
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Stochastic Volatility ◽  
Loss Function ◽  
Inflation Targeting ◽  
Reduced Form ◽  
Conditional Heteroskedasticity ◽  
Time Varying ◽  
Reaction Function ◽  
Content Type

PurposeThis 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/approachGiven 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.FindingsThe 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/valueThis 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.

scholarly journals Business cycle synchronization: is it affected by inflation targeting credibility?

SERIEs ◽  
2019 ◽  
Vol 11 (2) ◽  
pp. 157-177
Author(s):  
Carlos Delgado ◽  
Iván Araya ◽  
Gabriel Pino
Keyword(s):  
Monetary Policy ◽  
Business Cycle ◽  
Inflation Targeting ◽  
Short Term Memory ◽  
Aggregate Demand ◽  
Credibility Measure ◽  
Inflation Expectations ◽  
Business Cycle Synchronization ◽  
Vector Autoregressive ◽  
The Impact

Abstract We empirically study the impact of inflation targeting credibility on business cycle synchronization with G-7 economies. To do this, we use a sample of 15 inflation targeting countries to develop and calculate a reputation-based credibility measure for long- and short-term memory. By using dynamic multipliers through a panel vector autoregressive model, our main findings indicate that greater credibility allows for greater anchoring of inflation expectations by economic agents. This would lead to a greater effectiveness of monetary policy in stabilizing the evolution of prices, allowing the output gap to be more sensitive to external aggregate demand shocks. Therefore, countries with inflation targeting regimes must develop and maintain credibility for their monetary policy if they want to encourage greater interactions with the rest of the world.

Empirical appraisal of fiscal stability: the case of Ghana

2015 ◽  
Vol 42 (5) ◽  
pp. 753-779
Author(s):  
Nana Kwame Akosah
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Fiscal Policy ◽  
Central Bank ◽  
Public Debt ◽  
Inflation Targeting ◽  
Fiscal Sustainability ◽  
Content Type ◽  
Quarterly Data ◽  
Poor Countries

Purpose – The purpose of this paper is to appraise the stability of Ghana’s fiscal policy by assessing government’s reaction in the past to rising public debt over the last three decades. Design/methodology/approach – Using quarterly data spanning 1990Q1-2013Q2, the study evaluated the mean reverting properties of Ghana’s public debt and also estimate the fiscal policy reaction function. The complementary estimation techniques include Pesaran et al. (2001) bound testing cointegration test, differencing method and also Granger two-step cointegration methods. Findings – Using quarterly data from 1990Q1 to 2013Q2, the study found the fiscal policy to be unstable in the 1990s, necessitating the adoption of Heavily Indebted Poor Countries’ initiative in 2001. The fiscal situation however relatively stabilizes afterwards following the external debt relief in 2001. Nevertheless, the study reveals that the recent fiscal policy (since 2006) seems to be confronted with tremendous fiscal pressures, exacerbated by fiscal excesses during election cycles as well as excessive domestic and external borrowings. In addition, the economic growth-debt link was found to be weak, though debt appears to adversely affect economic growth. Research limitations/implications – The study does not thoroughly explore the possibility of non-linear relationship between public debt and primary balance. Also, the result could be different using different data frequencies. Practical implications – The state of government finance has implications on the monetary policy and economic growth prospects of an economy. As an inflation targeting central bank since 2002, a successful monetary policy implementation that reins in inflation requires fiscal policy that curtails fiscal volatilities originating from imprudent behaviour of government. Therefore, the looming fiscal pressures in recent times would impair the effective implementation of the inflation targeting framework by the central bank, and also retard economic growth as the bulk of these expenditures are usually recurrent in the case of Ghana. Originality/value – This is the first paper to employ complementary econometric techniques to empirically evaluate fiscal sustainability in Ghana.

scholarly journals Effectiveness of Expectation Channel of Monetary Transmission Mechanism in Inflation Targeting System: An Empirical Study for Turkey

2016 ◽  
Vol 6 (2) ◽  
pp. 222-231
Author(s):  
Aslı Güler
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
Critical Role ◽  
Economic Consequences ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Inflation Expectations ◽  
Transmission Mechanisms ◽  
Main Challenge

Monetary policy can affect economy through out various transmission mechanisms. One of this transmission mechanisms is expectations channel. The monetary policy can get involved in expectation channel of transmission mechanism by affecting the process of expectations formation. Because  the results of policies to be implemented vary according to the expectations, the main challenge in monetary policy is to correctly manage expectations. Because of the fact that only the systematic component of monetary policy (estimated component) can affect forward looking expectations, systematic behavior of the central bank has a critical role in determining the economic consequences of monetary policy. In this study, the effectiveness of expectation channel of transmission mechanism   was analyized by VAR model.  According the results  TCMB cannot affect inflation expectations via both the inflation targets and the policy interest. On the other hand, inflation expectations are affected significantly from actualized inflation rates and exchange rates.   Keywords: Central bank, Expectations, Monetary transmission mechanisms,  Monetary policy

scholarly journals Sentimental Outlook for the Monetary Policies of South African Reserve Bank

2021 ◽  
Vol 10 (3) ◽  
pp. 37-56
Author(s):  
Arnold Segawa
Keyword(s):  
Central Bank ◽  
South African ◽  
Inflation Targeting ◽  
Causal Effect ◽  
Effective Communication ◽  
Inflation Expectations ◽  
Systematic Analysis ◽  
Central Bank Communication ◽  
Inflation Expectation ◽  
Reserve Bank

The South African Reserve Bank (SARB) migrated to inflation targeting in 2000 and has since embarked on a trajectory of transparency. This has taken the shape of releasing Monetary Policy Committee (MPC) statements other forms of communication. This paper examines SARB’s MPC statements’ tone and sentiment between 2000 and 2021 using the Besigye-Segawa’s TextBlob polarity and subjectivity calculator which measures central bank communication tone and sentiment using the Loughran-McDonald dictionary’s word classification to gauge polarity and subjectivity. The study goes on to explore causality of SARB’s MPC statements’ tone and sentiment on inflation expectation results from the Bureau of Economic (BER) results survey. The systematic analysis shows a causality of SARB’s MPC statements’ tone and sentiment on succeeding BER’s inflation expectations results therein justifying the need for effective communication as SARB’s MPC communications’ polarity and subjectivity ultimately have a causal effect on inflation expectations. therein justifying the need for effective communication. As central bank tone and sentiment studies are only emerging in many emerging and frontier markets, this study lays a foundation for future exploration of effects of central bank communication on the expectations channel.

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