Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile and Mexico?

De Pooter, M., P. Robitaille, I. Walker, and M. Zdinak, 2014, “Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile, and Mexico?," International Journal of Central Banking, Vol 10(2):337-400.

49 Pages Posted: 2 Mar 2015

See all articles by Michiel De Pooter

Michiel De Pooter

Board of Governors of the Federal Reserve System

Patrice T. Robitaille

Federal Reserve Board - Division of International Finance (IFDP)

Ian Walker

Board of Governors of the Federal Reserve System

Michael Zdinak

Washington University in St. Louis

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2014

Abstract

In this paper, we consider whether long-term inflation expectations have become better anchored in Brazil, Chile, and Mexico. We do so using survey-based measures as well as financial market-based measures of long-term inflation expectations, where we construct the market-based measures from daily prices on nominal and inflation-linked bonds. This paper is the first to examine the evidence from Brazil and Mexico, making use of the fact that markets for long term government debt have become better developed over the past decade. We find that inflation expectations have become much better anchored over the past decade in all three countries, as a testament to the improved credibility of the central banks in these countries when it comes to keeping inflation low. That said, one-year inflation compensation in the far future displays some sensitivity to at least one macroeconomic data release per country. However, the impact of these releases is small and it does not appear that investors systematically alter their expectations for inflation as a result of surprises in monetary policy, consumer prices, or real activity variables. Finally, long-run inflation expectations in Brazil appear to have been less well anchored than in Chile and Mexico.

Keywords: Inflation targeting, survey expectations, inflation compensation, Nelson-Siegel model, macro news suprises, Brazil, Chile, Mexico

JEL Classification: D84, E31, E43, E44, E52, E58, G14

Suggested Citation

De Pooter, Michiel and Robitaille, Patrice T. and Walker, Ian and Zdinak, Michael, Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile and Mexico? (March 1, 2014). De Pooter, M., P. Robitaille, I. Walker, and M. Zdinak, 2014, “Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile, and Mexico?," International Journal of Central Banking, Vol 10(2):337-400., Available at SSRN: https://ssrn.com/abstract=2572011

Michiel De Pooter (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Patrice T. Robitaille

Federal Reserve Board - Division of International Finance (IFDP) ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2359 (Phone)
202-736-5638 (Fax)

Ian Walker

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Michael Zdinak

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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