Brazilian Central Bank communication and interest rate expectations

摘要

This article presents empirical evidence on the effect of regular Central Bank of Brazil (CBB) communication on volatility and the direction of the interest rates futures market. The volatility of interest rates in the financial market is observed before and after publication of regular CBB communication. Moreover, the period without publication (purdah period) is also considered. Hence, this article combines, in an original manner, the idea presented by Ehrmann and Fratzscher for evaluation of the impact of communication on financial market expectation, and the model developed by Kuttner, for analysis concerning the expectations hypothesis of the term structure of interest rate. The findings support the idea that CBB communication has an effect on expectations of changes in the interest rates and in the expected direction. Furthermore, CBB communication is more effective when made in the periods before meetings of the Monetary Policy Committee and publication of the respective minutes.