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Cleiton Silva de Jesus, Thiago Rios Lopes and Silvana Dantas Guimarães
''Monetary policy credibility and inflation in an emerging economy''
( 2017, Vol. 37 No.2 )
In this paper, we investigate the relationship between monetary authority credibility and inflation in Brazil. We apply four credibility indices, which are available in the literature, to extract one factor using principal components methodology. This factor is considered a proxy to monetary policy credibility. The VAR approach is utilized to empirically investigate the dynamic relationship between credibility and inflation. The principal result of this paper suggest that the Brazilian monetary authority has lost credibility in recent years, specifically since 2010, and that an improvement in the level of credibility may reduce the rate of inflation.
Keywords: inflation, credibility, monetary policy.
JEL: E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
C5 - Econometric Modeling: General
Manuscript Received : Nov 04 2016 Manuscript Accepted : Apr 22 2017

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