IDEAS home Printed from
   My bibliography  Save this paper

Inflation targeting in Brazil: what difference does a year make?


  • Dionísio Dias Carneiro

    () (Department of Economics PUC-Rio)


The adoption of inflation targeting as a monetary policy strategy in Brazil was a convenient way to replace exchange rate rule by targeted inflation in an effort to anchor inflation expectations. This paper briefly evaluates the inflation target experience from three viewpoints: reasons behind the success, difficulties regarding forecasting and the risks ahead. It analyses the factors behind the success as well as the way initial doubts and a second round of mistrust were successfully dealt with. It looks at the empirical difficulties to estimate a reliable Demand Function and examines evidence on the persistence of high interest rates as captured by a Taylor rule. It points out to possible signaling problems in the transmission mechanism that might lead to a weakening of the confidence in the strategy in the future. Section 3 draws conclusions on risks that emerged together with favorable outcomes of the first year. There has been a substantial progress in the overall confidence in monetary policy's management. Inflation targeting has certainly played a relevant role in this gain. However, it looks like we have not got rid of the "thin ice economy" riding in the post-Real era, since dependence of inflation on foreign exchange availability is still high. Thus the Brazilian economy is still excessively dependent on international liquidity fluctuations. As it happened in the past six years, because of the combination of the size of interest rate movements with the persistence of effects, a double barrel destructive effect on investment and banking, good scenarios tend to be too good, and bad scenarios are seen as terrible for assets markets. An appendix note was written by Thomas Wu on the problem of finding a measurement of the output gap for the Brazilian economy.

Suggested Citation

  • Dionísio Dias Carneiro, 2000. "Inflation targeting in Brazil: what difference does a year make?," Textos para discussão 429, Department of Economics PUC-Rio (Brazil).
  • Handle: RePEc:rio:texdis:429

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Lanjouw, Peter & Quizon, Jaime & Sparrow, Robert, 2001. "Non-agricultural earnings in peri-urban areas of Tanzania: evidence from household survey data," Food Policy, Elsevier, vol. 26(4), pages 385-403, August.
    2. Marcel Fafchamps & Forhad Shilpi, 2003. "The spatial division of labour in Nepal," Journal of Development Studies, Taylor & Francis Journals, vol. 39(6), pages 23-66.
    3. Francisco de Hollanda Guimarães Ferreira & Peter Lanjouw & Marcelo Neri, 2000. "A new poverty profile for Brazil using PPV, PNAD and census data," Textos para discussão 418, Department of Economics PUC-Rio (Brazil).
    4. Jolliffe, Dean, 1998. "Skills, Schooling, and Household Income in Ghana," World Bank Economic Review, World Bank Group, vol. 12(1), pages 81-104, January.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Areosa, Waldyr Dutra & McAleer, Michael & Medeiros, Marcelo C., 2011. "Moment-based estimation of smooth transition regression models with endogenous variables," Journal of Econometrics, Elsevier, vol. 165(1), pages 100-111.
    2. Elaine Cristina de Piza & Joilson Dias, 2006. "Novo Consenso Macroeconômico E Política Monetária No Brasil: Uma Avaliação Empírica," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 164, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rio:texdis:429. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.