Inflation Targeting and the Fiscal Policy Regime: The Experience in Brazil
9 Pages Posted: 27 Apr 2005
Abstract
This article reviews the recent experience of Brazil showing that credit risk is at the centre of the mechanism through which a central bank might lose control of inflation. Brazil during 2002 came close to a situation where fiscal policy hindered the effectiveness of monetary policy. But in early 2003 a change in investors' perception of the long-run fiscal stance brought the economy back to normal conditions, reducing credit risk, stabilising the exchange rate and, through these two variables, inflation expectations, inflation and the dynamics of the public debt. Brazil's experience could thus offer useful lessons for other emerging market economies, which consider adopting inflation targeting as their monetary policy rule.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Inflation Targeting in Emerging Market Economies
By Arminio Fraga, Ilan Goldfajn, ...
-
Fiscal Dominance and Inflation Targeting: Lessons from Brazil
-
Fiscal Dominance and Inflation Targeting: Lessons from Brazil
-
Fiscal Sustainability and Monetary Versus Fiscal Dominance: Evidence from Brazil, 1991-2000
By Evan Tanner and Alberto Ramos