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Inflation Targeting in an Open Financially Integrated Emerging Economy: the case of Brazil

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  • Marcelo Kfoury Muinhos

Abstract

This paper conducts a study of the pass-through from the exchange rate devaluation to inflation considering the recent change in the foreign exchange regime in Brazil. Econometric estimations were performed using the specifications of the pass-through suggested by Goldfajn and Werlang (2000). Some simulations of the augmented Taylor rule (with an added exchange rate term) have also been made to analyze the response from supply and external shocks in a simple Inflation Targeting model with trade balance equations. In contrast to Ball (2000), when the exchange rate is included in the Taylor rule, output volatility increases after a negative shock to the capital inflow.

Suggested Citation

  • Marcelo Kfoury Muinhos, 2001. "Inflation Targeting in an Open Financially Integrated Emerging Economy: the case of Brazil," Working Papers Series 26, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:26
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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. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
    3. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May.
    4. 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.
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    Cited by:

    1. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416, National Bureau of Economic Research, Inc.
    2. Correa, Arnildo da Silva & Minella, André, 2010. "Nonlinear mechanisms of the exchange rate pass-through: A Phillips curve model with threshold for Brazil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 64(3), September.
    3. Tarsila Segalla Afanasieff & Priscilla Maria Villa Lhacer & Márcio I. Nakane, 2002. "The Determinants of Bank Interest Spread in Brazil," Money Affairs, CEMLA, vol. 0(2), pages 183-207, July-Dece.
    4. Tito Nícias Teixeira da Silva Filho, 2001. "Estimando o Produto Potencial Brasileiro: Uma Abordagem de Função de Produção," Working Papers Series 17, Central Bank of Brazil, Research Department.
    5. Nogueira, Veridiana de Andrade & Mori, Rogério & Marçal, Emerson Fernandes, 2013. "Transmissão da variação cambial para as taxas de inflação no Brasil: estimação do pass-through através de modelos de vetores autorregressivos estruturais com correção de erros," Textos para discussão 349, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    6. Tito Nícias Teixeira da Silva Filho, 2001. "Uma Definição Operacional de Estabilidade de Preços," Working Papers Series 35, Central Bank of Brazil, Research Department.
    7. André Soares Loureiro & Fernando de Holanda Barbosa, 2004. "Risk Premia for Emerging Markets Bonds: Evidence from Brazilian Government Debt, 1996-2002," Working Papers Series 85, Central Bank of Brazil, Research Department.
    8. Eui Jung Chang & Marcelo Kfoury Muinhos & Joanílio Rodolpho Teixeira, 2002. "Macroeconomic Coordination and Inflation Targeting in a Two-Country Model," Working Papers Series 50, Central Bank of Brazil, Research Department.
    9. Minella, Andre & de Freitas, Paulo Springer & Goldfajn, Ilan & Muinhos, Marcelo Kfoury, 2003. "Inflation targeting in Brazil: constructing credibility under exchange rate volatility," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 1015-1040, December.
    10. Victorio Yi Tson Chu, 2002. "Credit Channel with Sovereign Credit Risk: an Empirical Test," Working Papers Series 51, Central Bank of Brazil, Research Department.
    11. Aloísio P. Araújo & José Valentim M. Vicente, 2006. "Contagion, Bankruptcy and Social Welfare Analysis in a Financial Economy with Risk Regulation Constraint," Working Papers Series 118, Central Bank of Brazil, Research Department.
    12. Benjamin Miranda Tabak, 2003. "Monetary Policy Surprises and the Brazilian Term Structure of Interest Rates," Working Papers Series 70, Central Bank of Brazil, Research Department.
    13. Leonardo Soriano de Alencar & Márcio I. Nakane, 2004. "Bank Competition, Agency Costs and the Performance of the Monetary Policy," Working Papers Series 81, Central Bank of Brazil, Research Department.
    14. Araújo, Aloísio Pessoa de & Leon, Márcia Saraiva, 2003. "Speculative attacks on debts and optimum currency area: a welfare analysis," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 514, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    15. Leonardo Soriano de Alencar & Márcio I. Nakane, 2003. "Real Balances in the Utility Function: Evidence for Brazil," Working Papers Series 68, Central Bank of Brazil, Research Department.
    16. Lech Kruś & Irena Woroniecka-Leciejewicz, 2017. "Monetary-Fiscal Game Analyzed Using a Macroeconomic Model for Poland," FindEcon Chapters: Forecasting Financial Markets and Economic Decision-Making, in: Magdalena Osińska (ed.), Statistical Review, vol. 64, 2017, 3, edition 1, volume 64, chapter 1, pages 285-304, University of Lodz.
    17. Mr. Claudio A Paiva, 2003. "Trade Elasticities and Market Expectations in Brazil," IMF Working Papers 2003/140, International Monetary Fund.
    18. Frederic S. Mishkin, 2008. "Challenges for Inflation Targeting in Emerging Market Countries," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 44(6), pages 5-16, November.
    19. Charles Lima De Almeida & Marco Aur�LIO Peres & Geraldo Da Silva E Souza & Benjamin Miranda Tabak, 2003. "Optimal monetary rules: the case of Brazil," Applied Economics Letters, Taylor & Francis Journals, vol. 10(5), pages 299-302, April.
    20. Paulo Coutinho & Benjamin Miranda Tabak, 2002. "Delegated Portfolio Management," Working Papers Series 60, Central Bank of Brazil, Research Department.
    21. Carlos de Almeida Cardoso & Flávio Vilela Vieira, 2004. "Câmbio, Inflação E Juros Na Transição Do Regime Cambial Brasileiro: Uma Análise De Vetores Auto-Regressivos E Causalidade," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32nd Brazilian Economics Meeting] 080, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    22. Benjamin Miranda Tabak, 2003. "On the Information Content of Oil Future Prices," Working Papers Series 65, Central Bank of Brazil, Research Department.
    23. Alexandre A. Tombini & Sergio A. Lago Alves, 2006. "The Recent Brazilian Disinflation Process and Costs," Working Papers Series 109, Central Bank of Brazil, Research Department.
    24. Marcelo Kfoury Muinhos & Márcio I. Nakane, 2006. "Comparing equilibrium real interest rates: different approaches to measure Brazilian rates," Working Papers Series 101, Central Bank of Brazil, Research Department.
    25. Benjamin Miranda Tabak. Solange Maria Guerra, 2002. "Stock Returns and Volatility," Working Papers Series 54, Central Bank of Brazil, Research Department.

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