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Implications of public debt indexation for monetary policy transmission

Author

Listed:
  • 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.

Suggested Citation

  • Joaquim Pinto de Andrade & Manoel Carlos de Castro Pires, 2011. "Implications of public debt indexation for monetary policy transmission," Journal of Applied Economics, Universidad del CEMA, vol. 14, pages 257-268, November.
    • Handle: RePEc:cem:jaecon:v:14:y:2011:n:2:p:257-268
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    File URL: https://ucema.edu.ar/publicaciones/download/volume14/andrade.pdf
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    Cited by:

    1. Shazia Sana & Shahnawaz Malik & Muhammad Ramzan Sheikh, 2022. "Investigating The Effectiveness Of Channels Of Monetary Transmission Mechanism In Pakistan: An Application Of Var Model, Impulse Response Function And Variance Decomposition," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(2), pages 160-184, June.

    More about this item

    Keywords

    wealth effect; monetary policy; indexation; public debt management;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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