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Implications of public debt indexation for monetary policy transmission

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  • Joaquim Pinto de Andrade

    (Brasília University (UnB))

  • Manoel Carlos de Castro Pires

    (Brazilian Institute of Applied Economic Research (IPEA))

Abstract

The goal of this paper is to provide a better understanding of monetary policy effectiveness in the case of indexed bonds. When public debt management deals with bonds indexed to the interest rate set by the monetary policy, there is no wealth effect and, as a consequence, monetary policy has a weak transmission channel reducing its effectiveness. This can help to explain why monetary policy in Brazil has been so tight and interest rates so high during the Real Plan.

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Bibliographic Info

Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): XIV (2011)
Issue (Month): (November)
Pages: 257-268

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Handle: RePEc:cem:jaecon:v:14:y:2011:n:2:p:257-268

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Keywords: wealth effect; monetary policy; indexation; public debt management;

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