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Can central bank credibility promote a substitution effect in the monetary transmission mechanism?

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  • Helder Ferreira de Mendonça
  • José Simão Filho
  • Elder Tiago C. de Souza

Abstract

We analysed whether the credibility of the Central Bank of Brazil (CBB) influences the substitution effect between the interest channel and the inflation expectations channel. Specifically, based on a DSGE model, we investigate the effects of central bank credibility on key domestic macroeconomic variables. The results show that higher central bank credibility reduces the harmful effect of fighting inflation on domestic macroeconomic variables.

Suggested Citation

  • Helder Ferreira de Mendonça & José Simão Filho & Elder Tiago C. de Souza, 2023. "Can central bank credibility promote a substitution effect in the monetary transmission mechanism?," Applied Economics, Taylor & Francis Journals, vol. 55(51), pages 5975-5990, November.
    • Handle: RePEc:taf:applec:v:55:y:2023:i:51:p:5975-5990
    DOI: 10.1080/00036846.2022.2140777
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    References listed on IDEAS

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