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Implementing Inflation Targeting in Brazil

  • Joel Bogdanski
  • Alexandre Antonio Tombini
  • Sérgio Ribeiro da Costa Werlang

Brazil has put in place an inflation-targeting framework for monetary policy in mid-1999, less than six months after moving to a floating exchange rate system. This paper presents the macroeconomic background that has led to the shift in monetary policy regime, and describes the general institutional arrangements and operational framework that has been adopted. The paper also discusses the basic modeling approach that has aided the decision-making process in the initial phase of inflation targeting in Brazil. We describe the family of small-scale macroeconomic models that has been used for informing and disciplining discussions about monetary policy within the Central Bank. These models contain few equations and few variables, but carry a considerable theoretical content and provide a stylized representation of the monetary policy transmission mechanism. They are easily understood, and especially suitable for simulation of a wide range of issues. We conclude with the main lessons that may be drawn from the initial Brazilian experience with inflation targeting.

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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps01.pdf
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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 1.

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Date of creation: Jul 2000
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Handle: RePEc:bcb:wpaper:1
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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