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Inflation Targeting in Brasil: Shocks. Backward-Looking Prices and IMF Conditionality

In: Inflation Targeting: Desing, Performance, Challenges

Author

Listed:
  • Joel Bogdanski

    (Banco Central do Brasil)

  • Paulo Springer de Freitas

    (Banco Central do Brasil)

  • Ilan Goldfajn

    (Banco Central do Brasil)

  • Alexandre Tombini

    (Banco Central do Brasil)

Abstract

This paper examines the recent evolution of monetary policy since the adoption of formal inflation targeting in Brazil. We argue that the new policy framework has been subject to a severe test in its first years of existence, represented by external shocks - oil prices, and increased international financial volatility. Moreover, we examine some selected issues that deserve due consideration given their importance to the conduct of monetary policy. The first issue is the presence of a substantial portion of prices with backward-looking adjustment, a fact that affects monetary policy reaction since it reduces the efficiency of domestic interest rates in controlling inflation. The second addresses the question of how inflation targets should be monitored in a country that has an ongoing economic program with the International Monetary Fund. This last issue is particularly important when considering the effects of shortening monitoring horizons on the variability of inflation and output.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Joel Bogdanski & Paulo Springer de Freitas & Ilan Goldfajn & Alexandre Tombini, 2002. "Inflation Targeting in Brasil: Shocks. Backward-Looking Prices and IMF Conditionality," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.),Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 13, pages 539-582, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v05c13pp539-582
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    References listed on IDEAS

    as
    1. Andrew Haldane, 1997. "Some Issues in Inflation Targeting," Bank of England working papers 74, Bank of England.
    2. Joel Bogdanski & Alexandre Antonio Tombini & Sergio R. Da C. Werlang, 2001. "Implementing Inflation Targeting in Brazil," Money Affairs, CEMLA, vol. 0(1), pages 1-23, January-J.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, vol. 66(2), pages 415-444, December.
    5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    6. Paulo Springer de Freitas & Marcelo Kfoury Muinhos, 2001. "A Simple Model for Inflation Targeting in Brazil," Working Papers Series 18, Central Bank of Brazil, Research Department.
    7. Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department.
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