Abstract
This paper examines how monetary policy decisions in Brazil, regarding short term interest rates, have affected the term structure of interest rates. We apply an event study methodology in two distinct periods: between January 2000 and August 2003, right after the implementation of the inflation targeting in Brazil, and between September 2003 and July 2008. The main results are: 1) the surprise effects have decreased; 2) the explanation power has increased in the second period, indicating enhancement of monetary policy; 3) market participants adjust their expectations with greater advance; 4) the surprise effects of decisions on short term rates on the term structure of interest rates are now close to those found in the USA and Germany, but higher to those found in the UK and Italy. Therefore, the results indicate that fixed income market expectations are better adjusted to the Central Bank anti-inflationary policy.
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