Abrupt Monetary Policy Change and Unanchoring of Inflation Expectations
Journal of Monetary Economics, v. 145, 2024
Inflation expectations can quickly become unanchored if the central bank undermines its commitment to the inflation target. This paper exploits a sudden change in monetary policy by the Brazilian Central Bank in 2011 and microdata from a daily survey of professional forecasters to establish support for this claim. Reanchoring came only years later, after a regime shift that included a change of government. A simple model with a well-defined concept of (un)anchored inflation expectations makes sense of and offers a structural interpretation of our empirical findings.
Daniel Adib, João Ayres, Silvia Matos, Marco Bonomo, Carlos Viana de Carvalho, Stefano Eusepi, Marina Perrupato Mendonça.