Empirical analysis of the formation of inflationary expectations in Brazil: an application of artificial neural networks to panel data

• Published in: Revista de economia contemporânea Vol. 13; no. 3; p. 391
• Main Authors: Andreza Aparecida Palma, Marcelo Savino Portugal
• Format: Journal Article
• Language: Portuguese
• Published: Rio de Janeiro Instituto de Economia da Universidade Federal do Rio de Janeiro 01-12-2009
• Subjects: Economic analysis; Economic theory; Foreign exchange rates; Neural networks; Brazil
• DOI: 10.1590/S1415-98482009000300002
• EISSN: 1980-5527

This work aims to empirically study the formation process of inflationary expectations in Brazil, in the recent period (after the introduction of the inflation targeting policy) by a connexionist model that approaches the way agents forecast. The coordination of market expectations in relation to the future inflation is a crucial aspect of the inflation targeting. The results obtained allow us to affirm that the biggest influence on the inflationary expectations in the period as a whole was from exchange rate volatility, followed by the commodities prices variation, by the first order lag of the expectations, by the exchange rate variation and by the target. In lesser magnitude, the primary result of the government, the second order lag and the Selic tax affect the expectations. In the period of reliable crisis, there is an expressive shift of the expectations in relation to the target, with an increase of the effect of the other variables. Inverse result occurs in the after-crisis period: the effect of the inflation target increases and of the other variables tend to be reduced, despite in some cases such effect are expressive (as the first order lag and exchange rate volatility). Thus we may conclude that the Brazilian Central Bank has been consolidating its credibility throughout the time, but there is still an open space for improvements.