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Effect of monetary policy credibility on the fear of floating: Evidence from Brazil

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  • Caldas Montes, Gabriel
  • Ferrari Ferreira, Caio
Abstract
Based on the argument that monetary policy credibility can reduce the fear of floating (FF), we analyze this hypothesis for Brazil. Since expectations play a key role under Inflation Targeting, we also analyze whether credibility can affect the expectations of financial markets about the FF of the Central Bank. The results show credibility can reduce the FF, and financial markets expect less intervention by the Central Bank when credibility is higher. Thus, policymakers must pay attention to the credibility of their policies, otherwise they may be misinterpreted regarding both the goals they pursue and how they conduct monetary policy.

Suggested Citation

  • Caldas Montes, Gabriel & Ferrari Ferreira, Caio, 2019. "Effect of monetary policy credibility on the fear of floating: Evidence from Brazil," Journal of Policy Modeling, Elsevier, vol. 41(5), pages 981-1004.
    • Handle: RePEc:eee:jpolmo:v:41:y:2019:i:5:p:981-1004
    DOI: 10.1016/j.jpolmod.2019.03.008
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    3. Gabriel Caldas Montes & Irineu da Silva Rodrigues Júnior & Júlio Cesar Albuquerque Bastos & Linican Monteiro Batista, 2024. "Effects of monetary policy credibility and the open economy trilemma on monetary policy efficiency," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 1236-1258, April.

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    More about this item

    Keywords

    Fear of floating; Credibility; Monetary policy; Exchange rate;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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