Inferring Structural Beliefs from Macroeconomic Expectations: Evidence from Brazil

IMF Working Papers, August 21, 2026

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Analysis covers multi-horizon market forecasts for macroeconomic variables in Brazil from 2010 to 2026, interpreted through a structural macroeconomic model that maps stated beliefs into a coherent belief system.
Produces time-varying beliefs about:
- policy rules,
- transmission mechanisms,
- structural shocks.
Key empirical findings:
- Beliefs about the monetary policy rule vary in two distinct dimensions, with the perceived target and Taylor response coefficients showing independent variation.
- Monetary transmission is seen as weak; the perceived Phillips and IS curves are very flat.
- Markets see fiscal policy as increasingly unresponsive to higher debt.
- The perceived inflation target is unchanged after an unexpected monetary tightening, but the perceived response to inflation increases, with larger effects for monetary surprises and smaller for news shocks.

Uses a structural macroeconomic model to interpret multi-horizon market forecasts as outcomes of a coherent belief system.
Infers time-varying perceived parameters: policy-rule parameters (including perceived target and Taylor response coefficients), transmission parameters (Phillips and IS curves), and perceived fiscal responsiveness.

Weak perceived monetary transmission and very flat perceived Phillips and IS curves suggest limited output and inflation response to policy rate changes as expected by market participants.
Independent variation in perceived target and response coefficients implies that credibility and reaction-strength are separate dimensions for market beliefs about the monetary authority.
Increasing market perception that fiscal policy is unresponsive to higher debt highlights concerns about fiscal sustainability and market confidence in fiscal adjustment.
After unexpected monetary tightening, unchanged perceived inflation target but higher perceived response to inflation indicates markets interpret tightening as a strengthening of the central bank’s reaction function rather than a change in the goal.