Monetary Policy and Inflation Expectations in Latin America: Long-Run Effects and Volatility Spillovers

This paper uses multiple cointegration analysis to estimate simultaneously a monetary reaction function and the determinants of expected inflation for Brazil, Chile, Colombia, and Mexico. In addition, M-GARCH modeling is used to test for the presence of volatility spillovers between the monetary sta...

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Bibliographic Details
Published in:	Journal of money, credit and banking Vol. 41; no. 8; pp. 1671 - 1690
Main Authors:	DE MELLO, LUIZ, MOCCERO, DIEGO
Format:	Journal Article
Language:	English
Published:	Malden, USA Blackwell Publishing Inc 01-12-2009 Wiley Periodicals Incorporated John Wiley & Sons, Inc Ohio State University Press
Subjects:	Analysis Anticipated inflation Brazil C22 Central banks Chile Cointegration Cointegration analysis Colombia E52 Economic expectations Emerging markets Estimating techniques Forecasts and trends GARCH models Inflation Inflation (Economics) Inflation (Finance) Inflation expectations Inflation rates Inflation targeting Interest rates Latin America M-GARCH Market trend/market analysis Mexico Monetary economics Monetary policy multiple cointegrating vectors O54 Output gaps Stochastic models Studies Variable interest rates Volatility volatility spillovers Latin America Brazil Colombia Mexico Chile
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Summary:	This paper uses multiple cointegration analysis to estimate simultaneously a monetary reaction function and the determinants of expected inflation for Brazil, Chile, Colombia, and Mexico. In addition, M-GARCH modeling is used to test for the presence of volatility spillovers between the monetary stance and inflation expectations. The analysis shows that there are long-term relationships between the interest rate, expected inflation, and the inflation target, and that greater volatility in the monetary stance increases the volatility of expected inflation in Brazil, Colombia, and Mexico.
Bibliography:	ArticleID:JMCB273 ark:/67375/WNG-MGVSFXTR-H istex:8656AF56CB5B5F0E6FD28C38ED50E7858B689CFF We are indebted to the editor, Pok‐sang Lam, two anonymous referees, Fabio Giambiagi, Peter Jarrett, Val Koromzay, Annabelle Mourougane, and Rodrigo Valdés for helpful comments and suggestions. Helpful comments and discussions were also provided by participants at the Seminar on Monetary Policy in Emerging Markets, jointly organized by the OECD and the Bank of England, the Economics Seminar at Namur University, the ADRES Ph.D. Meeting in Toulouse, and the RIEF Doctoral Meeting organized by the University of Barcelona. The authors remain solely responsible for any remaining errors and omissions. The opinions expressed in this paper are the authors' own and do not necessarily reflect those of the OECD or its member countries. ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23
ISSN:	0022-2879 1538-4616
DOI:	10.1111/j.1538-4616.2009.00273.x