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Monetary Policy and Inflation Expectations in Latin America: Long‐Run Effects and Volatility Spillovers
Author(s) -
DE MELLO LUIZ,
MOCCERO DIEGO
Publication year - 2009
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2009.00273.x
Subject(s) - economics , volatility (finance) , monetary policy , cointegration , monetary economics , inflation (cosmology) , autoregressive conditional heteroskedasticity , latin americans , inflation targeting , real interest rate , econometrics , linguistics , philosophy , physics , theoretical physics
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.