Short-term inflation expectations evaluation in the presence of instabilities

Abstract Modern macroeconomic theory and central bank practices have made expectations management a key ingredient in successful monetary policy. However, the challenge is greater in emerging economies, which are prone to instability and crises. Given that Brazil has frequently experienced major economic fluctuations, we study the behavior and forecasting performance of inflation expectations in a way that is robust to the presence of instabilities. The proposed tests provide more evidence against the rationality of the forecast for survey-based private forecasts. Furthermore, they uncover an informational or methodological advantage behind the medians of inflation expectations reported in the last five business days, and in forecasts in which the distance from the publication date of the observed IPCA prevails in relation to the projection time in the survey.