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Inflation targeting in Brazil: lessons and challenges

In: Monetary policy in a changing environment

  • André Minella

    (Central Bank of Brazil)

  • Paulo Springer de Freitas

    (Central Bank of Brazil)

  • Ilan Goldfajn

    (Central Bank of Brazil)

  • Marcelo Kfoury Muinhos

    (Central Bank of Brazil)

This paper assesses the first three years of the inflation-targeting regime in Brazil adopted in July 1999. The inflation-targeting framework has shown to be highly important for the macroeconomic stabilization. We stress three important challenges: construction of credibility, change in relative prices, and exchange rate volatility. The estimations indicate the following results: i) the inflation targets have worked as an important coordinator of expectations; ii) the Central Bank has reacted strongly to inflation expectations; iii) there has been a reduction in the degree of persistence in inflation and in the volatility of inflation and output; iv) the exchange rate pass-through for "administered or monitored" prices is more than two times higher than for "market" prices. We also describe the methodology the Central Bank has developed to deal with inflationary shocks, which quantifies the sources of inflation, and examine some issues involved in the institutional design of inflation targeting.

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This chapter was published in:
  • Bank for International Settlements, 2003. "Monetary policy in a changing environment," BIS Papers, Bank for International Settlements, number 19, 5.
  • This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 19-04.
    Handle: RePEc:bis:bisbpc:19-04
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    1. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
    2. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
    3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
    4. Carlo Ambrogio Favero & Francesco Giavazzi, . "Why are Brazil´s Interest Rates so High?," Working Papers 224, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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