Monetary Policy and Inflation in Brazil (1975-2000): A VAR Estimation

Banco Central do Brasil Working Paper No. 33

35 Pages Posted: 12 Feb 2002

Date Written: November 2001


This paper investigates monetary policy and basic macroeconomic relationships involving output, inflation rate, interest rate, and money in Brazil. Based on a vector autoregressive (VAR) estimation, it compares three different periods: moderately-increasing inflation (1975-1985), high inflation (1985-1994), and low inflation (1994-2000). The main results are the following: (1) monetary policy shocks have significant effects on output; (2) monetary policy shocks do not induce a reduction in the inflation rate in the first two periods, but there are indications that they have gained power to affect prices after the Real Plan was launched; (3) monetary policy does not usually respond rapidly or actively to inflation-rate and output innovations; (4) in the recent period, the interest rate responds intensely to financial crises; (5) positive interest-rate shocks are accompanied by a decline in money in all the three periods; (6) the degree of inflation persistence is substantially lower in the recent period.

Keywords: monetary policy, inflation, interest rate, money, Brazil

JEL Classification: E31, E52

Suggested Citation

Minella, Andre, Monetary Policy and Inflation in Brazil (1975-2000): A VAR Estimation (November 2001). Banco Central do Brasil Working Paper No. 33, Available at SSRN: or

Andre Minella (Contact Author)

Central Bank of Brazil ( email )

SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70.000-000 DF 70074
+55 61 414 3653 (Phone)
+55 61 226 0767 (Fax)

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