Credibility and Inflation Expectations: What we can tell from seven emerging economies?

Mendonça, Hélder Ferreira de

doi:10.1016/j.jpolmod.2018.06.001

Cited by 27 publications

(8 citation statements)

References 23 publications

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“…Poland adopted IT in 1999, and committed itself to pursue prudent anti-inflationary policy, but unlike the Czech and Hungarian cases, we find that money growth affects inflation in some degree. Our results are in line with the findings of de Mendonc (2018). This author researched Poland and six other emerging markets and asserted that only adopting inflation targeting is insufficient to anchor inflation expectations.…”

Section: Resultssupporting

confidence: 91%

Is Inflation a Monetary Phenomenon in the East European Economies? – Multifrequency Bayesian Quantile Inference

Živkov¹,

Kovačević²,

Lončar³

2020

ekoncas

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This paper tries to determine how growth of money supply affects inflation in different time-horizons and under different inflation levels in the Czech Republic, Poland, Hungary and Russia. The research is done by using two innovative methodologies -the wavelet approach and Bayesian quantile regression. By observing these four countries, we can assess whether inflation targeting (IT) plays significant role in curbing inflation, because three Visegrad group countries adopted IT almost two decades ago, while Russia started to conduct IT relatively recently. Estimated quantiles suggest that money supply growth does not influence inflation in the Czech Republic and Hungary, whatsoever. We find that money growth impacts inflation in Poland, but very modestly. On the other hand, in the case of Russia, the transmission effect from money to inflation is much higher, and it goes around 40% in low inflation conditions, when M1 aggregate is observed, and around 78% in low inflation conditions, when M3 aggregate is analysed. The overall results clearly indicate that the adoption of the IT framework as a disinflation strategy proved to be successful in the Visegrad group countries, since excessive money growth has little or no effect at all on inflation in these countries.

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Section: Resultssupporting

confidence: 91%

Is Inflation a Monetary Phenomenon in the East European Economies? – Multifrequency Bayesian Quantile Inference

Živkov¹,

Kovačević²,

Lončar³

2020

ekoncas

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“…4. Regarding the advantages of using the central bank credibility indexes under consideration, see de Mendonça (2018).…”

Section: Notesmentioning

confidence: 99%

Does central bank credibility from professional forecasters and consumers affect the interest rate and its expectations?

de Mendonça,

de Lima

2023

JES

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PurposeThis paper aims to contribute to the analysis concerning how inflation forecasts from different economic agents (professional forecasters and consumers) lead to varying levels of central bank credibility and how it affects the monetary policy interest rate and its expectations.Design/methodology/approachBased on the Brazilian economy data from June 2007 to May 2022, the authors provide evidence that is useful for search mechanisms that improve the conduct of monetary policy through the management of inflation expectations. The authors perform several ordinary least squares and generalized method of moments regressions inspired by the Taylor rule principle. In brief, the benchmark model considers that the monetary policy interest rate and its expectations respond to departures of inflation expectations to the target (a proxy for central bank credibility) and the level of economic activity.FindingsThe main result of the analysis is that inflation expectations from professional forecasters and consumers imply different perceptions of central bank credibility that affect the monetary policy interest rate and expectations for horizons until one year ahead.Originality/valueThe novelty that the authors bring from the analysis is that the authors calculate central bank credibility by taking into account the “public beliefs” of different economic agents. Furthermore, the authors analyze the effect of central bank credibility from professional forecasters and consumers on the monetary policy interest rate and its expectations.

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“…The importance of credibility to central banks is related to the ability in reducing the sacrifice ratio and social costs during a disinflation process because disinflation can be reached through a decrease in inflation expectations without the adoption of a tough monetary policy. In a context of high monetary policy credibility, inflation can be reduced with lower costs to the extent that the public believes that the central bank can reach the announced inflation target (de Mendonça, 2018). Thus, credibility is important for the creation of a stable macroeconomic environment and for the development of more optimistic expectations and confidence in relation to the economy.…”

Section: Introductionmentioning

confidence: 99%

Do monetary policy credibility and disagreements in inflation and interest rate expectations affect business confidence? Evidence from an inflation targeting developing country

Montes,

Díaz

2023

JMB

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PurposeBusiness confidence is crucial to firm decisions, but it is deeply related to professional forecasters' expectations. Since Brazil is an important inflation targeting country, this paper investigates whether monetary policy credibility and disagreements in inflation and interest rate expectations relate to business confidence in Brazil. The study considers the aggregate business confidence index and the business confidence indexes for 11 industrial sectors in Brazil.Design/methodology/approachThe authors run ordinary least squares and generalized method of moments regressions to assess the direct effects of disagreements in expectation and monetary policy credibility on business confidence. The authors also make use of Wald test of parameter equality to observe whether there are “offsetting effects” of monetary credibility in mitigating the effects of both disagreements in expectations on business confidence. Besides, the authors run quantile regressions to analyze the effect of the main explanatory variables of interest on business confidence in contexts where business confidence is low (pessimistic) or high (optimistic).FindingsDisagreements in inflation expectations reduce business confidence, monetary policy credibility improves business confidence and credibility mitigates the adverse effects of disagreements in expectations on business confidence. The sectors most sensitive to monetary policy credibility are Rubber, Motor Vehicles, Metallurgy, Metal Products and Cellulose. The findings also suggest the effect of disagreement in inflation expectations on business confidence decreases as confidence increases, and the effect of monetary policy credibility on business confidence increases as entrepreneurs are more optimistic.Originality/valueWhile there is evidence that monetary policy credibility is beneficial to the economy, there are no studies on the effects of disagreements in inflation and interest rate expectations on business confidence (at the aggregate and sectoral levels). Besides, there are no studies that have investigated whether monetary policy credibility can mitigate the effects of disagreements in inflation and interest rate expectations on business confidence (at the aggregate and sectoral levels). Therefore, there are gaps to be filled in the literature addressing business confidence, monetary policy credibility and disagreements in expectations. These issues are particularly important to inflation targeting developing countries.

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Credibility and Inflation Expectations: What we can tell from seven emerging economies?

Cited by 27 publications

References 23 publications

Is Inflation a Monetary Phenomenon in the East European Economies? – Multifrequency Bayesian Quantile Inference

Is Inflation a Monetary Phenomenon in the East European Economies? – Multifrequency Bayesian Quantile Inference

Does central bank credibility from professional forecasters and consumers affect the interest rate and its expectations?

Do monetary policy credibility and disagreements in inflation and interest rate expectations affect business confidence? Evidence from an inflation targeting developing country

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