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Monetary Policy And External Vulnerability In Brazil

  • Carlos Fernando Lagrota R. Lopes
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    This paper analyses monetary policy in Brazil, investigating why interest rates were so high and volatile from 1995 to 1998. We identify in monetary policy an overreaction to external shocks, where exogenous changes in international liquidity triggered sharp movements on domestic interest rates. We also show that the Brazilian policy response to these shocks was far more intense than in Argentina and Mexico. We argue that Brazil was caught in a high interest rates trap, which culminated in a currency crisis in January 1999.

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    File URL: http://www.anpec.org.br/encontro2004/artigos/A04A071.pdf
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    Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] with number 071.

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    Date of creation: 2004
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    Handle: RePEc:anp:en2004:071
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    1. Laurence Ball, 2002. "Policy Rules and External Shocks," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 3, pages 047-064 Central Bank of Chile.
    2. Scott, Alasdair, 2003. "APPLIED MACROECONOMETRICS Carlo A. Favero Oxford University Press, 2001," Macroeconomic Dynamics, Cambridge University Press, vol. 7(02), pages 313-315, April.
    3. Reinhart, Carmen & Kaminsky, Graciela, 2008. "The center and the periphery: The globalization of financial turmoil," MPRA Paper 14100, University Library of Munich, Germany.
    4. Clarida, Richard H, 2001. "The Empirics of Monetary Policy Rules in Open Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 315-23, October.
    5. Arminio Fraga & Ilan Goldfajn & André Minella, 2003. "Inflation Targeting in Emerging Market Economies," Working Papers Series 76, Central Bank of Brazil, Research Department.
    6. Edmar L. Bacha, 2003. "Brazil's Plano Real: a view from the inside," Chapters, in: Development Economics and Structuralist Macroeconomics, chapter 10 Edward Elgar.
    7. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
    8. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
    9. 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.
    10. Eliane A. Cardoso & Ilan Goldfajn, 1997. "Capital Flows to Brazil-The Endogeneity of Capital Controls," IMF Working Papers 97/115, International Monetary Fund.
    11. Sebastian Edwards & Mohsin S. Khan, 1985. "Interest Rate Determination in Developing Countries: A Conceptual Framework," NBER Working Papers 1531, National Bureau of Economic Research, Inc.
    12. Eichengreen, B. & Masson, P. & Savastano, M. & Sharma, S., 1999. "Transition Strategies and Nominal Anchors on the Road to Greater Exchange-Rate Flexibility," Princeton Essays in International Economics 213, International Economics Section, Departement of Economics Princeton University,.
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