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Inflation targets and exchange rate in Brazil

Author

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  • Helder Ferreira de Mendonça

Abstract

After surpassed more than a half decade since the adoption of inflation targeting in Brazil, it can be seen that maintaining a high interest rate is inherent to the strategy for the conduction of the monetary policy. The objective of this paper is to show that the present policy for defining the basic interest rate of the economy, based on the response to inflation considering both market prices and administered prices, is onerous for the Brazilian society. Based on findings from empirical evidence in the period 1999-2004, the adoption of a core inflation, a change in the time horizon for definition of targets, and, in common agreement between Banco Central do Brasil and National Treasury a definition of these inflation targets, as a framework to increase efficiency of the monetary regime creating possibilities for reducing the Selic rate is proposed. JEL Classification: E52; E58.

Suggested Citation

  • Helder Ferreira de Mendonça, 2007. "Inflation targets and exchange rate in Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 27(3), pages 431-451.
    • Handle: RePEc:ekm:repojs:v:27:y:2007:i:3:p:431-451:id:574
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    More about this item

    Keywords

    interest rate; market prices; administrative prices; inflation; exchange;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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