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Inflation targeting in Brazil: shocks, backward-looking prices and IMF conditionality

In: Market functioning and central bank policy

Author

Listed:
  • Joel Bogdanski

    (Central Bank of Brazil)

  • Paulo Springer de Freitas

    (Central Bank of Brazil)

  • Ilan Goldfajn

    (Central Bank of Brazil)

  • Alexandre Tombini

    (Central Bank of Brazil)

Abstract
This paper examines the recent evolution of monetary policy since the adoption of formal inflation targeting in Brazil. We argue that the new policy framework has been subject to a severe test in its first years of existence, represented by external shocks – oil prices, and increased international financial volatility. Moreover, we examine some selected issues tha deserve due consideration given their importance to the conduct of monetary policy. The first issue is the presence of a substantial portion of prices with backward-looking adjustment, a fact that affects monetary policy reaction since it reduces the efficiency of domestic interest rates in controlling inflation. The second addresses the question of how inflation targets should be monitored in a country that has an ongoing economic program with the International Monetary Fund. This last issue is particularly important when considering the effects of shortening monitoring horizons on the variability of inflation and output.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Joel Bogdanski & Paulo Springer de Freitas & Ilan Goldfajn & Alexandre Tombini, 2002. "Inflation targeting in Brazil: shocks, backward-looking prices and IMF conditionality," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 358-384, Bank for International Settlements.
    • Handle: RePEc:bis:bisbpc:12-17
    as

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    References listed on IDEAS

    as
    1. Andrew Haldane, 1997. "Some Issues in Inflation Targeting," Bank of England working papers 74, Bank of England.
    2. Joel Bogdanski & Alexandre Antonio Tombini & Sergio R. Da C. Werlang, 2001. "Implementing Inflation Targeting in Brazil," Money Affairs, CEMLA, vol. 0(1), pages 1-23, January-J.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, vol. 66(2), pages 415-444, December.
    5. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    6. Paulo Springer de Freitas & Marcelo Kfoury Muinhos, 2001. "A Simple Model for Inflation Targeting in Brazil," Working Papers Series 18, Central Bank of Brazil, Research Department.
    7. Ilan Goldfajn & Sérgio Ribeiro da Costa Werlang, 2000. "The Pass-through from Depreciation to Inflation: A Panel Study," Working Papers Series 5, Central Bank of Brazil, Research Department.
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