Advertisement

Empirical Economics

, Volume 57, Issue 6, pp 1979–1996 | Cite as

Importance of credibility for business confidence: evidence from an emerging economy

  • Helder Ferreira de MendonçaEmail author
  • André Filipe Guedes Almeida
Article
  • 159 Downloads

Abstract

This study investigates the main factors affecting the confidence of the entrepreneur and, in particular, the effect caused by the credibility of monetary policy. We estimate the effect of credibility on business confidence by using two alternative measures of ability of the Brazilian central bank to meet the policy targets. The findings indicate that the credibility of the monetary policy can reduce uncertainty level in the economy, thus permitting an improvement for the entrepreneurs in their decision making. Furthermore, the results indicate that an increase in the institutional instability can bring a deterioration in the business confidence.

Keywords

Credibility Business confidence Expectations Institutional instability 

JEL Classification

E58 M21 M13 

References

  1. Amano R, Coletti D, Macklem T (1999) Monetary rules when economic behaviour changes. Bank of Canada working paper 99(8)Google Scholar
  2. Atukeren E, Korkmaz T, Cevik EI (2013) Spillovers between business confidence and stock returns in Greece, Italy, Portugal and Spain. Int J Financ Econ 18(3):205–215CrossRefGoogle Scholar
  3. Blinder AS (2000) Central-bank credibility: why do we care? How do we built it? Am Econ Rev 90(5):1421–1431CrossRefGoogle Scholar
  4. Bloom N (2009) The impact of uncertainty shocks. Econometrica 77(3):623–685CrossRefGoogle Scholar
  5. Bloom N (2014) Fluctuations in uncertainty. J Econ Perspect 28(2):153–176CrossRefGoogle Scholar
  6. Bodo G, Golinelli R, Parigi G (2000) Forecasting industrial production in the Euro area. Empir Econ 25(4):541–561CrossRefGoogle Scholar
  7. Brown GW, Cliff MT (2004) Investor sentiment and the near-term stock market. J Empir Financ 11(1):1–27CrossRefGoogle Scholar
  8. Claveria O, Pons E, Ramos R (2007) Business and consumer expectations and macroeconomic forecasts. Int J Forecast 23(1):47–69CrossRefGoogle Scholar
  9. Cukierman A, Meltzer AH (1986) A theory of ambiguity, credibility, and inflation under discretion and asymmetric information. Econometrica 54(5):1099–1128CrossRefGoogle Scholar
  10. de Mendonça H (2007) Towards credibility from inflation targeting: the Brazilian experience. Appl Econ 30(19–21):2599–2615CrossRefGoogle Scholar
  11. de Mendonça HF, e SOUZA GJDG (2009) Inflation targeting credibility and reputation: the consequences for the interest rate. Econ Model 26(6):1228–1238CrossRefGoogle Scholar
  12. de Mendonça HF, Tostes FS (2015) The effect of monetary and fiscal credibility on exchange rate pass-through in an emerging economy. Open Econ Rev 26(4):787–816CrossRefGoogle Scholar
  13. Dias MHA, Teixeira AM, Dias J (2013) New macroeconomic consensus and inflation targeting: monetary Policy Committee directors’ turnover in Brazil. EconomiA 14(3–4):158–170CrossRefGoogle Scholar
  14. Dieters MAF (2010) The impact of surprise policy actions on interest rates: the influence of Central Bank Credibility. Erasmus University, RotterdamGoogle Scholar
  15. Doğan MK, Bozdemi̇r G (2014) The effects of credibility on interest rates in Turkey. Eurasian J Bus Econ 7(14):71–90CrossRefGoogle Scholar
  16. Engle RF, Granger CJ (1987) Cointegration and error-correction-representation, estimation and testing. Econometrica 55(2):251–278CrossRefGoogle Scholar
  17. Ewing BT (2003) The response of the default risk premium to macroeconomic shocks. Q Rev Econ Financ 43(2):261–272CrossRefGoogle Scholar
  18. Fernandes CM (2013) The credibility of the monetary policy in Brazil: an econometric time series analysis approach. University van Amsterdam, AmsterdamGoogle Scholar
  19. Guiso L, Parigi G (1999) Investment and demand uncertainty. Q J Econ 114(1):185–227CrossRefGoogle Scholar
  20. Hansson J, Jansson P, Lof M (2005) Business survey data: do they help in forecasting GDP growth? Int J Forecast 21(2):377–389CrossRefGoogle Scholar
  21. Issing O (2005) Communication, transparency, accountability: monetary policy in the twenty-first century. Fed Reserve Bank St. Louis Rev 87(2):65–83Google Scholar
  22. Johansen S (1988) Statistical analysis of cointegration vectors. J Econ Dyn Control 12(2–3):231–254CrossRefGoogle Scholar
  23. Johansen S, Juselius K (1990) Maximum likelihood estimation and inference on cointegration with applications to the demand for money. Oxford Bull Econ Stat 52(2):169–210CrossRefGoogle Scholar
  24. Khemiri R, Ali MSB (2012) Exchange rate pass-through and inflation dynamics in Tunisia: a Markov–Switching approach. Economics discussion papers 2012-39, Kiel Institute for the World EconomyGoogle Scholar
  25. Klein LR, Ozmucur S (2010) The use of consumer and business surveys in forecasting. Econ Model 27(6):1453–1462CrossRefGoogle Scholar
  26. Konstantinou P, Tagkalakis A (2011) Boosting confidence: is there a role for fiscal policy? Econ Model 28(4):1629–1641CrossRefGoogle Scholar
  27. Koop G, Pesaran MH, Potter SM (1996) Impulse response analysis in non-linear multivariate models. J Econ 74(1):119–147CrossRefGoogle Scholar
  28. MacKINNON JG (1996) Numerical distribution functions for unit root and cointegration tests. J Appl Econ 11(6):601–618CrossRefGoogle Scholar
  29. Montes GC (2013) Credibility and monetary transmission channels under inflation targeting: an econometric analysis from a developing country. Econ Model 30(C):670–684CrossRefGoogle Scholar
  30. Montes GC, Bastos JCA (2013) Economic policies, macroeconomic environment and entrepreneurs’ expectations: evidence from Brazil. J Econ Stud 40(3):334–354CrossRefGoogle Scholar
  31. Ng Y (1992) Business confidence and depression prevention: a mesoeconomic perspective. Am Econ Rev 82(2):365–371Google Scholar
  32. Ng S, Perron P (2001) Lag length selection and the construction of unit root tests with good size and power. Econometrica 69(6):1519–1554CrossRefGoogle Scholar
  33. Pesaran MH, Shin Y (1998) Generalized impulse response analysis in linear multivariate models. Econ Lett 58(1):17–29CrossRefGoogle Scholar
  34. Pesaran MH, Shin Y, Smith RJ (2001) Bounds testing approaches to the analysis of level relationships. J Appl Econ 16(3):289–326CrossRefGoogle Scholar
  35. Salle I, Sénégas MA, Yildizoglu M (2013) How transparent about its inflation target should a Central Bank be? An agent-based model assessment. GREThA working paper, 2013–24. University of BordeauxGoogle Scholar
  36. Schmeling M (2009) Investor sentiment and stock returns: some international evidence. J Empir Finance 16(3):394–408CrossRefGoogle Scholar
  37. Taylor K, McNabb R (2007) Business cycles and the role of confidence: evidence for Europe. Oxford Bull Econ Stat 69(2):185–208CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Helder Ferreira de Mendonça
    • 1
    Email author
  • André Filipe Guedes Almeida
    • 2
  1. 1.Department of Economics and National Council for Scientific and Technological Development (CNPq)Fluminense Federal UniversityRio de JaneiroBrazil
  2. 2.Brazilian Institute of Geography and StatisticsRio de JaneiroBrazil

Personalised recommendations