Gabriel Caldas Montes

Effects of transparency, monetary policy signalling and clarity of central bank communication on disagreement about inflation expectations

ABSTRACT The literature on transparency and central bank communication and the literature on disagreement about expectations are evolving; however, both have been evolving separately. Despite the advances in the literature, several key issues remain open and there are gaps to be filled. Therefore, this study analyses the effects of monetary policy signalling and clarity of central bank communication on disagreement about inflation expectations. It also investigates whether greater transparency coincides with lower levels of disagreement in inflation expectations in Brazil. The findings suggest that transparency is important to reduce disagreement about inflation expectations. Moreover, our estimates indicate that central bank communication and clarity affect disagreement about inflation expectations in Brazil.

Corruption: what are the effects on government effectiveness? Empirical evidence considering developed and developing countries

Abstract This study analyses the impact of corruption on government effectiveness for a sample of 130 countries. The findings suggest that less-corrupt countries have better quality of public service, better quality in the formulation and adoption of policies and greater credibility and governments commitment to such policies. The findings also suggest that the effect of corruption on government effectiveness is higher in developed countries. Moreover, the estimates also reveal that countries with the most indebted governments and with higher inflation rates have less-efficient governments, and an increase in rule of law represents a good strategy to improve government effectiveness. In turn, regarding developing countries, the findings show that countries with more democratic regimes have a higher degree of government effectiveness.

Effects of reputation and credibility on monetary policy: theory and evidence for Brazil

Purpose - – The purpose of this paper is to demonstrate that both the reputation of the monetary authority and the credibility of the regime of inflation targeting are important to reduce the inflation bias and the effort of the monetary authority in an emerging economy. Design/methodology/approach - – The paper develops a model which shows that the gain of credibility reduces the effort of the monetary authority in the conduct of monetary policy. The paper presents an econometric analysis for Brazil through ordinary least squares, generalized method of moments (GMM), system of equations by GMM and vector autoregressive. Findings - – The findings suggest that the reputation of the monetary authority is important to the improvement of credibility, and the gains of credibility reduce the effort of the monetary authority in the conduct of monetary policy, reducing the variations of the monetary base. Originality/value - – In the theoretical field, the study develops a model which shows that credibility is important to reduce both the inflation bias and the efforts of the monetary authority in the conduct of monetary policy. In the empirical field: first, it proposes a new index of reputation for the monetary authority; second, it demonstrates that the gain of reputation improves credibility, but also that attempts to exploit the output-inflation trade-off reduces credibility; third, the analysis found that the gains of credibility reduce the efforts of the monetary authority in the conduct of monetary policy.

Economic policies, macroeconomic environment and entrepreneurs' expectations: Evidence from Brazil

Purpose – The purpose of this paper is to analyze the influence of macroeconomic variables and economic policies on expectations and confidence of entrepreneurs. It provides an econometric analysis of the expectation transmission channel under inflation targeting in Brazil, emphasizing the effect of inflation targeting credibility on the business confidence of industrial entrepreneurs. Design/methodology/approach – Based on ordinary least square (OLS), generalized method of moments (GMM) and vector autoregression (VAR), the paper provides empirical evidence about the influence of inflation targeting credibility and macroeconomic policies on expectations and confidence of entrepreneurs and, as a consequence, on industrial production. Findings – The evidence for the Brazilian economy suggest that monetary and fiscal policies as well as the credibility of the monetary regime affect economic activity by their impact on expectations of entrepreneurs. Research limitations/implication – Development of macroeconomic stability is important to the expectations formed by entrepreneurs and, therefore, for industrial production. In particular, inflation targeting credibility stimulates industrial production, since it increases the confidence of entrepreneurs about the functioning of the economy and their businesses. Originality/value – The results suggest new insights about the influence of economic policies on the real side of the economy, pointing out that the conduct of economic policies in emerging countries with inflation targets are likely to affect the expectations of entrepreneurs and therefore their production decisions.

Does central bank communication affect bank risk-taking?

This article examines whether bank risk-taking is influenced by monetary policies as well as by communication policies of a central bank. In particular, we analyse whether the signal emitted by the central bank about a likely rise (fall) in the basic interest rate for the next policy meeting and its pessimistic (optimistic) perception regarding the macroeconomic environment are responsible for inducing banks to take less (more) risks. We provide evidence for the link between monetary policies, central bank communication and bank risk-taking. The findings reveal central bank communication influences the behaviour of banks once their risk perceptions are affected.

Does clarity of central bank communication affect credibility? Evidences considering governor-specific effects

ABSTRACT Central banks have made great efforts to increase transparency and accountability to the public. Since then, studies seek empirical evidences about the effects of monetary policy communication over agent’s expectations. The recent literature on central bank communication draws attention to the importance of clarity of central bank communication. However, researches on this theme are still scarce, and there are few empirical studies with conclusive findings. Our study seeks empirical evidences on the relation between clarity of central bank communication and credibility of monetary policy. Estimates through different methods aim to identify whether clarity of central bank communication improves credibility. The study is the first to provide empirical evidence that a clearer communication can improve credibility. We also consider the differences between the two governors who ruled the Central Bank of Brazil in the period under analysis. The results indicate that a clear communication can improve credibility, but it depends on the commitment of the central banker with the goal of inflation control. Furthermore, estimates based on quantile regression indicate that the benefit brought by the clarity to the credibility depends on the commitment of the monetary authority with the goal guiding inflation expectations.

Time-inconsistency problem: less common than we think

Purpose - – The purpose of this paper is to make an empirical analysis concerning time-inconsistency problem (TIP) based on a sample of 12 countries for the period from 1993 to 2011. Design/methodology/approach - – The existence of TIP only makes sense if there is a trade-off between inflation and unemployment and when there is a causal relationship indicating that with more inflation, unemployment is reduced (as suggested by the Phillips curve). Hence, TIP is observed by testing the existence of cointegration between inflation rate and unemployment rate series and analyzing the sign of the estimated coefficient of the cointegration vector. Findings - – The findings indicate that the large majority of countries in the sample have policies that are consistent with long-term goals. Furthermore, it is possible to conjecture that the traditional argument that developing countries have weak institutions and thus present a fertile ground for TIP or that the adoption of inflation targeting (IT) can avoid TIP is not necessarily true. Originality/value - – This study sheds light on four important issues. First, has the change in the mindset of the monetary policy management from the 1990s eliminated TIP? Second, is TIP a sickness only for developing countries? Third, is IT associated with TIP? Fourth, has the TIP increased around the world due to the subprime crisis? In short, this paper is an advance on the empirical literature on TIP and it is a very important overview for observing the present day conduct of the monetary policy through the international experience.

O debate acerca dos objetivos e condução da política fiscal: uma abordagem crítica à visão convencional

O presente trabalho resgata os principais argumentos que servem como guias e recomendacoes que sustentam a visao convencional de conducao da politica fiscal, para em seguida, confronta-la com uma visao critica, fundamentada principalmente no arcabouco pos-keynesiano baseado na Teoria das Financas Funcionais. Alem disso, aborda de maneira critica a conducao da politica fiscal no Brasil no periodo recente, apresentando fatos estilizados acerca de seus objetivos e resultados.