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Did The Taylor Rule Stabilize Inflation in Brazil?

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  • Rodrigo De-Losso

Abstract

This paper characterizes the monetary policy in Brazil through a forward-looking Taylor-rule-type reaction function before and after the Real plan, which stabilized inflation in July 1994. The results show that the interest rate response to inflation was greater than one-to-one before stabilization and smaller than that afterwards, hence inverting the Taylor’s principle. Several robustness checks, using mainly distinct proxies for output, output gap and data frequency strongly confirm the findings.

Suggested Citation

  • Rodrigo De-Losso, 2012. "Did The Taylor Rule Stabilize Inflation in Brazil?," Working Papers, Department of Economics 2012_21, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2012wpecon21
    as

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    File URL: http://www.repec.eae.fea.usp.br/documentos/Delosso21WP.pdf
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    References listed on IDEAS

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    13. repec:pri:cepsud:114blinderreis is not listed on IDEAS
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    18. Rodrigo De-Losso, 2012. "Questioning The Taylor Rule," Working Papers, Department of Economics 2012_22, University of São Paulo (FEA-USP).
    19. Jondeau E. & Le Bihan H. & Galles C., 2004. "Assessing Generalized Method-of-Moments Estimates of the Federal Reserve Reaction Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 225-239, April.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Taylor Rule does not always work
      by Economic Logician in Economic Logic on 2012-11-02 19:27:00

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    Cited by:

    1. Onanuga, Abayomi & Oshinloye, Michael & Onanuga, Olaronke, 2015. "Monetary Policy-Making in Nigeria: Does evidence support augmented Taylor Rule?," MPRA Paper 83329, University Library of Munich, Germany.
    2. Rodrigo De-Losso, 2012. "Questioning The Taylor Rule," Working Papers, Department of Economics 2012_22, University of São Paulo (FEA-USP).

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    More about this item

    Keywords

    Taylor Rule; inflation targeting; inflation stability;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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