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A note on inflation targeting and economic growth in Brazil

Author

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  • Gilberto Libânio

    (Professor adjunto da Faculdade de Ciências Econômicas, Centro de Desenvolvimento e Planejamento Regional da Universidade Federal de Minas Gerais.)

Abstract

This paper analyzes the relation between monetary policy and economic performance in Brazil during the period 1999-2006. In particular, it discusses the growth effects of the inflation targeting regime through its effects on aggregate demand. It is argued that monetary policy under IT reacts in a procyclical and asymmetric way to fluctuations in economic activity (too ‘tight’ during recessions, not so ‘loose’ during expansions). Such pattern may generate a downward bias in aggregate demand, with negative real effects on output growth and employment. Our results suggest that monetary policy has been procyclical and asymmetrical in Brazil under inflation targeting. The main economic policy implication of this study is that central banks should consider more seriously the real effects of monetary policy on output and employment. JEL Classification: E52; E58.

Suggested Citation

  • Gilberto Libânio, 2010. "A note on inflation targeting and economic growth in Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 30(1), pages 73-88, January.
    • Handle: RePEc:ekm:repojs:v:30:y:2010:i:1:id:95599
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    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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