What Drives Inflation Expectations in Brazil? An Empirical Analysis

Author/Editor:

Martin D. Cerisola ; Gaston Gelos

Publication Date:

June 1, 2005

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This study examines the macroeconomic determinants of survey inflation expectations in Brazil since the adoption of inflation targeting in 1999. The results suggest that the inflation targeting framework has helped anchor expectations, with the dispersion of inflation expectations declining considerably, particularly during periods of high uncertainty. We also find that apart from the inflation target, the stance of fiscal policy, as proxied by the ratio of the consolidated primary surplus to GDP, has been instrumental in shaping expectations. The importance of past inflation in determining expectations appears to be relatively low, and the overall empirical evidence does not suggest the presence of substantial inertia in the inflation process.

Series:

Working Paper No. 2005/109

Subject:

Fiscal policy Inflation Inflation targeting Price controls Real effective exchange rates

English

Publication Date:

June 1, 2005

ISBN/ISSN:

9781451861280/1018-5941

Stock No:

WPIEA2005109

Pages:

22

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