Inflation Targeting in Brazil: Lessons and Challenges

Banco Central do Brasil Working Paper No. 53

48 Pages Posted: 19 Feb 2003

See all articles by Andre Minella

Andre Minella

Central Bank of Brazil

Paulo Springer de Freitas

Government of the Federative Republic of Brazil - Central Bank of Brazil

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Marcelo Kfoury Muinhos

Government of the Federative Republic of Brazil - Studies and Research Department

Date Written: November 2002

Abstract

This paper assesses the first three years of the inflation-targeting regime in Brazil adopted in July 1999. The inflation-targeting framework has shown to be highly important for the macroeconomic stabilization. We stress three important challenges: construction of credibility, change in relative prices, and exchange rate volatility. The estimations indicate the following results: i) the inflation targets have worked as an important coordinator of expectations; ii) the Central Bank has reacted strongly to inflation expectations; iii) there has been a reduction in the degree of persistence in inflation and in the volatility of inflation and output; iv) the exchange rate pass-through for "administered or monitored" prices is more than two times higher than for "market" prices. We also describe the methodology the Central Bank has developed to deal with inflationary shocks, which quantifies the sources of inflation, and examine some issues involved in the institutional design of inflation targeting.

JEL Classification: E31, E52, E58

Suggested Citation

Minella, Andre and Springer de Freitas, Paulo and Goldfajn, Ilan and Kfoury Muinhos, Marcelo, Inflation Targeting in Brazil: Lessons and Challenges (November 2002). Banco Central do Brasil Working Paper No. 53. Available at SSRN: https://ssrn.com/abstract=353660 or http://dx.doi.org/10.2139/ssrn.353660

Andre Minella (Contact Author)

Central Bank of Brazil ( email )

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

Paulo Springer de Freitas

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia DF 70074-900, Distr. Federal 70074-900
Brazil

Ilan Goldfajn

Gávea Investimentos ( email )

Rua Dias Ferreira, 190 7th andar
22431-050 Rio de Janeiro
Brazil

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia DF 70074-900, Distr. Federal 70074-900
Brazil
61-4143232 (Phone)
61-2260767 (Fax)

Marcelo Kfoury Muinhos

Government of the Federative Republic of Brazil - Studies and Research Department ( email )

Brasilia, Distr. Federal 70.000-000 DF 70074
Brazil
+55 61 414 1998 (Phone)

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