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

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.