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An Operational Definition of Price Stability

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  • Tito Nícias Teixeira da Silva Filho

Abstract

The attitude towards inflation has changed thoroughly along the last decade. The change was basically motivated by three reasons: a) the high cost resulting from the inflation increase in the 70s and 80s; b) the lower than expected costs of the global disinflation in the 90s; and c) the significant evolution of the literature on inflation costs and benefits in the past ten years. Indeed, today it is known that inflation costs are very much higher than the estimated at the beginning of the 90s. This difference is partially due to the better identification and measurement of costs produced by the perverse interaction between inflation and tax system. On the other hand, some arguments in favor of 'some' inflation has come up in this period. And, in spite of difficulties in the estimation of some of the specific inflation costs, there is a consensus today that the main objective of the monetary policy must be price stability. However, literature improvements have not been enough to establish which long-term inflation rate should be targeted or which is the optimal inflation rate. This paper aims at showing, summarily, the main inflation costs and benefits considering the recent advances in the specialized literature. The intention is to contribute to the discussion about what should be the long-term nflation target for Brazil.

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  • Tito Nícias Teixeira da Silva Filho, 2002. "An Operational Definition of Price Stability," Working Papers Series 35, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:35
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    1. Bonomo, Marco Antonio Cesar & Brito, Ricardo D., 2002. "Regras Monetárias e Dinâmica Macroeconômica no Brasil: Uma Abordagem de Expectativas Racionais," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 56(4), October.
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    10. Sergio Afonso Lago Alves, 2001. "Evaluation of the Central Bank of Brazil Structural Model's Inflation Forecasts in an Inflation Targeting Framework," Working Papers Series 16, Central Bank of Brazil, Research Department.
    11. Eduardo Lundberg, 2000. "Monetary Policy and Banking Supervision Functions on the Central Bank," Working Papers Series 2, Central Bank of Brazil, Research Department.
    12. Mauro Costa Miranda, 2001. "Crises Cambiais e Ataques Especulativos no Brasil," Working Papers Series 32, Central Bank of Brazil, Research Department.
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