Expected Inflation, Lagged Inflation and the Central Bank’s Credibility : Time-Varying and VAR Analysis for the Recent Brazilian Case

By the Kalman filter and a Vector Autoregressive (VAR) analysis for the recent Brazilian economy, this work aims at assessing empirical evidences on relationships between expected inflation, observed inflation and the Central Bank's credibility. It is found that an inflation positive shock causes not only an increase of the expected inflation, but also a decrease of the Central Bank's credibility, which is measured through a time-varying correlation between the expected inflation and the lagged one