Transparency and monetary policy outcomes in the Brazilian inflation targeting

Abstract

We investigate the effects of transparency on the outcomes of monetary policy in Brazil with inflation targeting. To this end, regimes of high and low transparency are defined, by the means of a new indicator that takes account of the differential in inflation expectations of the central bank and the market, and the threshold VAR model. Our results show a predominance of an increased transparency regime after June 2003. Furthermore, our results indicate that the effects of transparency occurred mainly on inflationary control; while positive policy rate shocks (Selic rate) reduced both consumer price inflation and inflation expectations in this regime.