We propose and implement a measure of central bank's credibility using individual financial market agents' expectations. Our hypothesis is that long-term expectations' heterogeneity comes from different beliefs about central bank's aversion to inflation. Accordingly, the existence of persistently optimistic or pessimistic agents would reflect a credibility loss. We construct a credibility index for Brazil using Markov Chains. The novelty of our index is to consider the dispersion of inflation expectations. We compare our results with the literature, and conclude that our new measure of central bank credibility provides an improvement vis-à-vis the existing ones.
