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Did The Taylor Rule Stabilize Inflation in Brazil?

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  • Rodrigo De-Losso

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Abstract

This paper characterizes the monetary policy in Brazil through a forward-looking Taylor-rule-type reaction function before and after the Real plan, which stabilized inflation in July 1994. The results show that the interest rate response to inflation was greater than one-to-one before stabilization and smaller than that afterwards, hence inverting the Taylor’s principle. Several robustness checks, using mainly distinct proxies for output, output gap and data frequency strongly confirm the findings.

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File URL: http://www.fea.usp.br/feaecon/RePEc/documentos/Delosso21WP.pdf
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Bibliographic Info

Paper provided by University of São Paulo (FEA-USP) in its series Working Papers, Department of Economics with number 2012_21.

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Date of creation: 16 Sep 2012
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Handle: RePEc:spa:wpaper:2012wpecon21

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Keywords: Taylor Rule; inflation targeting; inflation stability;

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References

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  1. Jondeau E. & Le Bihan H. & Galles C., 2004. "Assessing Generalized Method-of-Moments Estimates of the Federal Reserve Reaction Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 225-239, April.
  2. Woodford, Michael, 1999. "Optimal monetary policy inertia," CFS Working Paper Series 1999/09, Center for Financial Studies (CFS).
  3. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1.
  4. Athanasios Orphanides & Simon van Norden, 2001. "The Unreliability of Output Gap Estimates in Real Time," CIRANO Working Papers 2001s-57, CIRANO.
  5. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14 National Bureau of Economic Research, Inc.
  6. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
  7. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
  8. Rodrigo De-Losso, 2012. "Questioning The Taylor Rule," Working Papers, Department of Economics 2012_22, University of São Paulo (FEA-USP).
  9. Lars E. O. Svensson, 2003. "What is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," NBER Working Papers 9421, National Bureau of Economic Research, Inc.
  10. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan Standard," Working Papers 88, Princeton University, Department of Economics, Center for Economic Policy Studies..
  11. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  12. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Taylor Rule does not always work
    by Economic Logician in Economic Logic on 2012-11-02 14:27:00
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Cited by:
  1. Rodrigo De-Losso, 2012. "Questioning The Taylor Rule," Working Papers, Department of Economics 2012_22, University of São Paulo (FEA-USP).

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