Does Credibility Matter for Interest Rate Changes and Output Gaps? Econometric Experiment for an Emerging Economy

  • Marcos V. N. Montes
  • Ricardo Ramalhete MoreiraEmail author
Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)


According to the credibility hypothesis, the higher the monetary policy credibility the lower the social costs underlying the efforts to sustain price stability, that is, the disinflation cost from adjusting the basic interest rate is decreasing in monetary policy credibility (Blinder in American Economic Review 90(5):1421–1431, 2000; Bomfim and Rudebusch in Journal of Money, Credit, and Banking 32:707–721, 2000; Walsh in Monetary theory and policy. MIT Press, 2010). We aimed at testing such a hypothesis for Brazil, from January 2003 to May 2015. By using five indicators for monetary policy credibility and performing VAR and Markov-Switching (MS) models, we found robust results suggesting a negative effect of credibility gains on interest rate changes and output gaps, thereby confirming the hypothesis for the Brazilian economy.


Monetary policy credibility Output gaps VAR Markov-switching Brazil 

JEL Classification

310 E37 E58 


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Copyright information

© Springer Nature Switzerland AG 2018

Authors and Affiliations

  • Marcos V. N. Montes
    • 1
  • Ricardo Ramalhete Moreira
    • 1
    Email author
  1. 1.Federal University of Espírito SantoVitóriaBrazil

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