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The Political Economy of Monetary Institutions in Brazil: The Limits of the Inflation Targeting Strategy, 1999-2005

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  • Matias Vernengo
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    Abstract

    The paper provides a critical analysis of the literature on monetary policy institutions. It presents a critique of the dominant notion of central bank independence, based on the literature on time-inconsistency of monetary policy. An alternative view that emphasizes the role of distributive conflict in establishing monetary policy regimes is developed and used to analyze the Brazilian inflation targeting regime implemented in 1999. The analysis suggests that financial or rentier’s interests benefit from the current monetary regime, while manufacturing and worker’s interests bear the costs.

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    Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2006_05.

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    Length: 20 pages
    Date of creation: 2006
    Date of revision:
    Publication status: Published in Review of Political Economy, 20(1), January 2008, 95-110.
    Handle: RePEc:uta:papers:2006_05
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    Keywords: Inflation Targeting; Central Bank Behavior; Distributive Conflict;

    Find related papers by JEL classification:

    • 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
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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    1. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
    2. James K. Galbraith, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter.
    3. Alfredo Saad-Filho & Maria de Lourdes R. Mollo, 2002. "Inflation and stabilization in Brazil: a political economy analysis," Review of Radical Political Economics, Union for Radical Political Economics, vol. 34(2), pages 109-135, June.
    4. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    5. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
    6. Bernhard, William & Broz, J. Lawrence & Clark, William Roberts, 2002. "The Political Economy of Monetary Institutions," International Organization, Cambridge University Press, vol. 56(04), pages 693-723, September.
    7. Ernesto H. Stein & Jeffry Frieden & Piero Ghezzi, 2000. "Politics and Exchange Rates: A Cross-Country Approach to Latin America," Research Department Publications 3119, Inter-American Development Bank, Research Department.
    8. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, December.
    9. Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Monetary Integration and Dollarization, chapter 8 Edward Elgar Publishing.
    10. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    11. Bénédicte Vidaillet & V. D'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    12. Raford Boddy & James Crotty, 1975. "Class Conflict and Macro-Policy: The Political Business Cycle," Review of Radical Political Economics, Union for Radical Political Economics, vol. 7(1), pages 1-19, April.
    13. Fernando J. Cardim De Carvalho, 1996. "The Independence of Central Banks: A Critical Assessment of the Arguments," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(2), pages 159-175, January.
    14. Gerald Epstein, 2003. "Alternatives to Inflation Targeting Monetary Policy for Stable and Egalitarian Growth: A Brief Research Summary," Working Papers wp62, Political Economy Research Institute, University of Massachusetts at Amherst.
    15. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc.
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