Monetary Policy in Brazil> the challenges of the inflation targeting regime

Abstract

Abstract: Over the last few years, inflation targeting has been used in Brazil as the main tool to conduct monetary policy. It is time to start looking back in order to learn from the lessons offered. In this period, the country went through a series of turbulences that challenged policymakers' actions. The objective of this paper is twofold. Firstly, we will give an overview of the inflation targeting regime in Brazil, from the time of its implementation until the end of 2005. Secondly, we will analyze the regime thoroughly in order to show our concerns about the way monetary policy has been conducted in the country. We will argue that the regime has had some drawbacks which have not been dealt with properly by our policymakers. As a result, the search for credibility by the Brazilian Central Bank has led to a continuous interest rate increase, aimed at an immediate target reaching. In social terms, the negative results cannot be neglected either, especially on the unemployment level and on the economic growth.