Inflation Targeting in Brazil: Shocks, Backward-Looking Prices, and IMF Conditionality
This paper examines the recent evolution of monetary policy since the adoption of formal inflation targeting in Brazil. We argue that the new policy framework has been subject to a severe test in its first years of existence, represented by external shocks - oil prices, and increased international financial volatility. Moreover, we examine some selected issues that deserve due consideration given their importance to the conduct of monetary policy. The first issue is the presence of a substantial portion of prices with backward-looking adjustment, a fact that affects monetary policy reaction since it reduces the efficiency of domestic interest rates in controlling inflation. The second addresses the question of how inflation targets should be monitored in a country that has an ongoing economic program with the International Monetary Fund. This last issue is particularly important when considering the effects of shortening monitoring horizons on the variability of inflation and output.
|Date of creation:||Aug 2001|
|Date of revision:|
|Publication status:||Published in Loayza, N. and Soto, R. (editors): Inflation Targeting: Design, Performance, Challenges, Santiago, Central Bank of Chile. pp. 539-582.|
|Contact details of provider:|| Web page: http://www.bcb.gov.br/?english|
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- Clarida, R. & Gali, J. & Gertler, M., 1999.
"The Science of Monetary Policy: A New Keynesian Perspective,"
99-13, C.V. Starr Center for Applied Economics, New York University.
- Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
- 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.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "The science of monetary policy: A new Keynesian perspective," Economics Working Papers 356, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 1999.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
- Ilan Goldfajn & Sergio R.C. Werlang, 2000.
"The pass-through from depreciation to inflation : a panel study,"
Textos para discussão
423, Department of Economics PUC-Rio (Brazil).
- Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department.
- Andrew Haldane, 1997. "Some Issues in Inflation Targeting," Bank of England working papers 74, Bank of England.
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