Central bank credibility and inflation expectations: a microfounded forecasting approach

Abstract Credibility is elusive, but Blinder [(2000) American Economic Review 90, 1421–1431.] generated a consensus in the literature by arguing that “A central bank credible if people believe it will do what says.” To implement this idea, we first measure people’s beliefs using survey data on inflation’s expectations. Second, compare with explicit (or tacit) targets, taking into account uncertainty our estimate of (asymptotic 95% robust confidence intervals). Whenever target falls interval consider credible. We not otherwise. apply approach to study credibility Brazilian Central Bank (BCB) world-class database—the Focus Survey forecasts. Using monthly from January 2007 until April 2017, inflation 12 months ahead, coupled its asymptotic interval. Results show BCB was 65% time, exception few beginning and during between mid-2013 throughout mid-2016.