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Optimal Rules for Monetary Policy in Brazil

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  • Joaquim Pinto de Andrade
  • José Angelo C. A. Divino

Abstract

This paper presents optimal rules for monetary policy in Brazil derived from a backward looking expectation model consisting of a Keynesian IS function and an Augmented Phillips Curve (IS-AS). The IS function displays a high sensitivity of aggregate demand to the real interest rate and the Phillips Curve is accelerationist. The optimal monetary rules show low interest rate volatility with reaction coefficients lower than the ones suggested by Taylor (1993a,b). Reaction functions estimated through ADL and SUR models suggest that monetary policy has not been optimal and has aimed to product rather than inflation stabilization. Este trabalho apresenta regras ótimas de política monetária no Brasil derivadas de um modelo que consiste de uma função keinesiana IS e uma Curva de Phillips Aumentada (IS-AS) e com expectativas voltadas para trás. A função IS revela alta sensibilidade da demanda agregada à taxa de juros e a Curva de Phillips é aceleracionista. A regra ótima de política monetária mostra reduzida volatilidade da taxa de juros com coeficientes de reação menores do que os sugeridos por Taylor (1993a e b). Funções de reação estimadas através de modelos ADL e SUR sugerem que a política monetária não tem sido ótima e tem buscado estabilizar o produto em lugar da inflação.

Suggested Citation

  • Joaquim Pinto de Andrade & José Angelo C. A. Divino, 2015. "Optimal Rules for Monetary Policy in Brazil," Discussion Papers 0101, Instituto de Pesquisa Econômica Aplicada - IPEA.
    • Handle: RePEc:ipe:ipetds:0101
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    References listed on IDEAS

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    6. Glenn Rudebusch & Lars E.O. Svensson, 1999. "Policy Rules for Inflation Targeting," NBER Chapters, in: Monetary Policy Rules, pages 203-262, National Bureau of Economic Research, Inc.
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    Cited by:

    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, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 56(4), October.
    2. baaziz, yosra, 2016. "Les règles de Taylor à l’épreuve de la révolution : cas de l’Égypte [The Taylor rule to the test of the revolution: the case of Egypt]," MPRA Paper 69779, University Library of Munich, Germany.
    3. Ajax R. B. Moreira & Marco A. F. H. Cavalcanti, 2015. "Robustness and Stabilization Properties of Monetary Policy Rules in Brazil," Discussion Papers 0100, Instituto de Pesquisa Econômica Aplicada - IPEA.
    4. 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].
    5. Julio Cesar Costa Pinto & Joaquim Pinto de Andrade, 2011. "Comparaçãoentre técnicas estatísticas naestimação de modelos Novo-Keynesianos aplicadosao Brasil," Anais do XXXVII Encontro Nacional de Economia [Proceedings of the 37th Brazilian Economics Meeting] 34, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Minella, André, 2003. "Monetary Policy and Inflation in Brazil (1975-2000): A VAR Estimation," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 57(3), July.
    7. Wilson Corrêa & Sidney Caetano, 2013. "Monetary policy and transmission mechanism in Brazil: an empirical model," Empirical Economics, Springer, vol. 45(1), pages 115-135, August.
    8. Moreira, Tito Belchior Silva & Souza, Geraldo Silva & Ellery, Roberto, 2013. "An Evaluation of the tolerant to higher inflation rate in the short run by the Brazilian Central Bank in the period 2001-2012," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 67(4), November.

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