Abstract
This paper evaluate the effects of using Forward Guidance by the Central Bank of Brazil with DSGE models. We compare the effects on economy of a rise in interest rates previously announced and perfectly credible (Forward Guidance), against a trajectory in which the private agents do not believe that the plan will occur. The results show that the announced and credible shock on interest rate increases significantly the power of monetary policy over inflation and over GDP in Brazilian economy, suggesting the expected path of interest rates is very important for monetary policy conduction.
