Effects of credibility and reputation on interest rate Selic and monetary policy transmission for the aggregate investment through asset price channel

Abstract

The paper analyzes, empirically, i) the importance of the credibility of inflation targets and the reputations of fiscal and monetary authorities to the conduct of monetary policy; and ii) the transmission mechanism of monetary policy through the asset prices channel. The analysis – for the period from November 2002 to December 2011 – uses ordinary least squares (OLS), the generalized method of moments (GMM) and systems of equations through GMM. The work contributes to the literature since it develops an index to measure the reputation of the fiscal authority and provides evidence about the transmission mechanism of monetary policy through the asset prices channel, noting the effect of monetary policy on aggregate investment.