A performatividade da Economia e o Novo Consenso Macroeconômico: o caso do Regime de Metas de Inflação no Brasil

In light of the global financial cycle (GFC), this paper investigates the effectiveness of monetary policy in Brazil since the adoption of the inflation targeting regime. The theoretical section analyses monetary policy from the New Macroeconomic Consensus perspective, emphasizing the implications of the GFC. It also contrasts central bank theory with the post-Keynesian critique. For the empirical investigation, a Markov-switching vector autoregressive model is estimated from January 2000 to December 2017, combining the common variables from the empirical literature with the proxy for the GFC. The main results suggest that greater financial instability has a direct effect on domestic inflation.

This paper analyzes the Brazilian experience with the inflation targeting regime (ITR) since its adoption in June 1999. The theoretical analysis starts by covering the New Consensus Macroeconomics (NCM) only policy, in which the ITR is the monetary policy recommendation. This discussion is then complemented first by the current debate in the international mainstream on the need for a flexible ITR that considers the effects of monetary policy on the economy and second by the heterodox discussion on the need to completely abandon the ITR. The discussion on the Brazilian experience and its comparison with international experiences show that Brazil is one of the few countries where the monetary policy objective is restricted to price control and where the horizon for returning inflation to the target is only one year. Within this institutional framework, the Brazilian economy under the ITR is marked by the maintenance of extremely high real and nominal interest rates and with difficulties in meeting the inflation targets. The price control obtained also did not generate the expected externalities in terms of economic growth and employment. After almost 20 years of adopting the ITR in Brazil, it has generated exaggerated contractionary pressures on the Brazilian economy, indicating the need for a thorough examination of monetary institutions in Brazil in order to resume economic growth with price stability and social equity.

This article theoretically and empirically analyzes the hypothesis of the nonlinearity of Brazilian monetary policy following the implementation of inflation-targeting regime. At the theoretical level, it discusses growth and macroeconomic regimes and their effect over Brazilian economy according to the behavior of a number of variables. Empirically, it tests the hypothesis of the nonlinearity of monetary policy in Brazil, estimating a Markov-switching vector autoregressive (MS-VAR) model. The results identify two different monetary regimes: the first regime, which primarily occurred between 2000 and 2007, and the second regime, which primarily occurred between 2007 and 2013. In the case of the second regime, a contractionary monetary policy had more persistent effects on both the public debt and the exchange rate.

Análise do desempenho da política monetária no Brasil após o Plano Real

Monetary policy is the macroeconomic policy that allows central banks to influence the economy. It involves managing the money supply and interest rates to address macroeconomic challenges such as inflation, consumption, growth and liquidity. Historically, for a long time, the task of monetary policy was limited to controlling the exchange rate, which in turn was fixed (at the beginning of the 20th century on the gold standard) for the purposes of promoting international trade. Eventually such a policy contributed to the Great Depression of the 1930s. After the depression, governments prioritized employment. The central banks have changed their direction based on the relationship between unemployment and inflation, known as the Phillips curve. They believed in the link between unemployment and inflation stability, which is why they decided to use monetary policy (putting money into the economy) to increase total demand and maintain low unemployment. However, this was a misguided decision that led to stagflation in the 1970s and the addition of an oil embargo in 1973. Inflation rose from 5.5% to 12.2% in 1970-1979 and peaked in 1979 at 13.3%. Over the past few decades, central banks have developed a new management technique called «inflation targeting» to control the growth of the overall price index. As part of this practice, central banks are publicizing targeted inflation rate and then, through monetary policy instruments, mainly by changing monetary policy interest rates, trying to bring factual inflation closer to the target. Given that the interest rate and the inflation rate are moving in opposite directions, the measures that the central bank should take by increasing or decreasing the interest rate are becoming more obvious and transparent. One of the biggest advantages of the inflation targeting regime is its transparency and ease of communication with the public, as the pre-determined targets allows the National Bank›s main goal to be precisely defined and form expectations on of monetary policy decisions. Since 2009, the monetary policy of the National Bank of Georgia has been inflation targeting. The inflation target is determined by the National Bank of Georgia and further approved by the Parliament. Since, 2018- 3% is medium term inflation target of National Bank of Georgia. The inflation targeting regime also has its challenges, the bigger these challenges are in developing countries. There are studies that prove that in some emerging countries, the inflation targeting regime does not work and other monetary policy regimes are more efficient. It should be noted that there are several studies on monetary policy and transmission mechanisms in Georgia. Researches made so far around the topic are based on early period data. Monetary policy in the current form with inflation targeting regime started in 2009 and in 2010 monetary policy instruments (refinancing loans, instruments) were introduced accordingly, there are no studies which cover in full the monetary policy rate, monetary policy instruments and their practical usage, path through effect on inflation and economy. It was important to analyze the current monetary policy, its effectiveness, to determine the impact of transmission mechanisms on the small open economy and business development. The study, conducted on 8 variables using VAR model, identified both significant and weak correlations of the variables outside and within the politics like GDP, inflation, refinancing rate, M3, exchange rate USD/GEL, exchange rate USD/TR and dummy factor, allowing to conclude, that through monetary policy channels and through the tools of the National Bank of Georgia, it is possible to have both direct and indirect (through inflation control) effects on both, economic development and price stability

This paper examines whether monetary policy shocks affect CO2 emissions over time in Brazil. We show that CO2 emissions decline persistently following contractionary monetary policy shocks. The relationship between monetary policy and CO2 emissions in Brazil is assessed through two channels: trade openness and exchange rates. The theoretical model illustrates how monetary policy affects the domestic economy through the real exchange rate. An application of a Global VAR (GVAR) to the Brazilian economy from 1996 to 2018 investigates the effects of monetary policy in Brazil (or in the U.S.) on real GDP and, subsequently, on CO2 emissions. A contractionary monetary policy shock in Brazil causes a short-run appreciation of the currency, lower output in the long run, and lower CO2 emissions (−0.02% after 24 months). A contractionary U.S. monetary policy shock also causes a decline in the stock market and a short-run depreciation of the currency. This shock leads to lower output in the long run, reducing CO2 emissions by −0.01% after 20 months.

Introduction. In 2020, the COVID-19 pandemic quickly spread to almost all countries, causing a downturn in the economy and worsening monetary stability. In terms of the scale of its effects, this stress even exceeded the impact of the global financial crisis. It was quite logical to revise the parameters of monetary policy, including lowering (or keeping low) key policy rates, accepting long-term refinancing operations, and reducing the required reserve ratio. All of these measures were intended to stimulate the economy, and the recent practice deserves an examination of how effective the transmission of monetary policy has been. Problem Statement. The implementation of monetary policy in the context of the pandemic is giving rise to new academic discussions about transmission channels, as well as the combination of the general and the particular in the context of countries. The purpose is to examine the transmission mechanism of monetary transmission to achieve the inflation target and ensure sustainable economic growth of the national economy. Methods. General scientific and specific methods of scientific cognition were used. In particular, the study used system analysis to describe models of the monetary policy transmission mechanism; abstract and logical analysis to summarize and build logical links between individual links in the monetary policy transmission mechanism; and statistical and economic analysis to analyze the impact of monetary transmission on inflation under the inflation targeting regime. Methods. System analysis was used to describe models of the transmission mechanism of monetary policy; abstract-logical – for summarizing and building logical connections between separate links of the transmission mechanism of monetary policy; statistical and economic - to analyze the impact of monetary transmission on inflation within the framework of the inflation targeting (IT) regime. Results. Transmission channels are defined as the chain of transmission of the impact from the key policy rate (discount rate) to the next link in the monetary transmission chain. Because of its properties (systematicity, consistency, and microfoundedness), neo-Keynesian logic is well suited to the main macroeconomic models that belong to the class of structural models (including both classical DSGE and semi-structural models). The model used by the National Bank of Ukraine to describe the transmission and build a medium-term forecast of the domestic economy also belongs to the class of structural models. A structural model in the neo-Keynesian logic combines the three most powerful transmission channels - interest rate, exchange rate, and expectations channels. An impulse in the key policy rate is instantly reflected in the 10-day interbank lending rate, and this rate is therefore the NBU's operational target for monetary policy. From the interbank lending rate, the impact of monetary policy is transmitted further to rates in other segments of the money market. Changes in interest rates affect the consumption and investment decisions of economic agents. From market interest rates and financial asset yields, the monetary policy impulse spreads further to lending activity and balance sheet indicators of companies and banks. Changes in the key policy rate affect prices and the value of assets on companies' balance sheets. From the credit sector, the impulse is smoothly transferred to economic activity and inflation. Aggregate demand, expectations, the exchange rate, and producer costs respond to monetary policy. Monetary policy affects expectations and, consequently, inflation by creating an “anchor” for its expected level in the medium term. Conclusions. Achieving the inflation target through the use of the IT regime is an important condition for achieving macroeconomic stability. The NBU's transition to IT was justified, as evidenced by the proven hypothesis of a sharp decline in inflation and price volatility in the medium term. Prices stabilized through the expectations channel. A timely response to the challenges of the pandemic should be accompanied by an easing of monetary policy aimed at reducing the cost of financial resources and restoring long-term lending to the economy. The experience gained enabled the banking system to withstand the next shock - a full-scale Russian aggression against Ukraine, using proven approaches. Studies have shown that the inflation target of 5% ± 1 p.p., which is optimal from the NBU's point of view, does not affect economic growth. The use of the key policy rate instrument demonstrates a delayed reaction of market participants with a lag of 9-18 months. The regulator focuses on the inflation target and, once it is achieved, on measures to support inflation within the planned target. Resolving the dilemma between the planned inflation rates and maintaining economic growth requires regulatory changes to the laws governing the central bank.

This study analyzes the reaction function of the Central Bank of Brazil in setting the Selic rate, taking into account the influence of macroeconomic and fiscal variables between 2003 and 2024. To this end, we estimate different specifications of the Taylor Rule using the Generalized Method of Moments robust to heteroskedasticity and autocorrelation (GMM-HAC). We initially estimate the model with macroeconomic variables, including the lagged interest rate, the output gap, the real effective exchange rate, the deviation of inflation expectations from the target, and the commodity price index. Subsequently, we incorporate fiscal variables—namely, public debt (% of GDP) and the primary deficit (% of GDP)—to assess their impact on the conduct of monetary policy. The analysis covers the full sample and two distinct subperiods (2003–2013 and 2014–2024) for the Brazilian economy, allowing the identification of asymmetries in the monetary authority’s response over time. The results indicate strong inertia in monetary policy, as evidenced by the coefficient of the lagged interest rate. The output gap proves relevant, especially during economic and fiscal stability periods. The deviation of inflation expectations from the target influences the interest rate, reinforcing the Central Bank of Brazil’s commitment to the inflation-targeting regime. Among the fiscal variables, public debt is statistically significant, particularly when its trajectory is under control. In contrast, the primary deficit shows no short-term impact, suggesting an indirect effect through the increase in debt.

This paper estimates a forward-looking reaction function with time-varying parameters to examine changes in the Brazilian monetary policy under the inflation-targeting regime. As the monetary policy rule has endogenous regressors, the conventional Kalman filter cannot be applied. Thus, the two-step procedure proposed by Kim and Nelson (J Monet Econ 53:1949–1966, 2006) is used for consistent estimation of the hyper-parameters of the model. The results indicate that the reaction function parameters of the Central Bank of Brazil are time-varying and that the regressors of that function are endogenous. Besides, we observed that: (i) the monetary policy interest rate (Selic rate) responses to current inflation and the inflationary expectations present considerable changes and have diminished with the passing of time; (ii) since mid-2010, policy rule has violated the Taylor principle; (iii) the implicit target for the Selic interest rate has shown a decline over time; and (iv) the degree of interest rate smoothing has shown a relative stability. Finally, the policy instrument response to the output gap presents an increasing trend over the 2010–2011 period.

PurposeThe evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy.Design/methodology/approachThe analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries.FindingsCountries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries.Practical implicationsThe study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy.Originality/valueStudies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

PurposeThis paper analyzes the potential presence of time-varying asymmetries in the preference parameters of the Central Bank of Brazil during the inflation targeting regime.Design/methodology/approachGiven the econometric issues inherent to classical time-varying parameter (TVP) regressions, a Bayesian estimation procedure is implemented in order to provide more robust parameter estimates. A stochastic volatility specification is also included to take into account the potential presence of conditional heteroskedasticity.FindingsThe obtained results show that the reduced form and structural parameters were not constant during the period considered. Moreover, the subsequent analysis of the preference parameters provided evidences of short periods in which asymmetry was an important feature to the conduction of monetary policy in Brazil. Yet, during most of the sample period, the loss function was considered to be symmetrical.Originality/valueThis paper aims to contribute to the rather scarce monetary debate on time-varying central bank preferences. The study of Lopes and Aragón (2014) is, to the best of the authors’ knowledge, the only study for Brazil considering specifically TVPs. The authors applied Kalman filter estimation to data from 2000:M1 to 2011:M12. Despite the similar structure of TVPs, the present paper extends the latter study by controlling for stochastic volatility. Ignoring conditional heteroskedasticity might lead to spurious movements in time-varying variables and inaccurate inference (Hamilton, 2010). Thus, the stochastic volatility specification is included to take this issue into account. The authors follow the theoretical scheme put forward by Surico (2007) and Aragón and Portugal (2010), in which the economy is modeled from a New Keynesian perspective and the central bank loss function is assumed to be asymmetric regarding the responses to inflation and output deviations from their targets. On the empirical side, the authors propose a TVP univariate regression with stochastic volatility for the Brazilian reduced-form reaction function, following closely the Bayesian econometric procedure developed by Nakajima (2011). Given the nonlinear non-Gaussian nature of the TVP regression with stochastic volatility, the choice of a nonlinear Bayesian approach using the Markov chain Monte Carlo (MCMC) method is justified due to the intractability of the associated likelihood function (Primiceri, 2005). Finally, based on the theoretical model specification, the authors intend to recover the central bank preference parameters as to further evaluate the degree of asymmetry and its potential time-variation under the inflation targeting regime.

In January 2002, the Central Bank of Turkey (CBT) moved to an implicit inflation targeting framework, which included core attributes of an inflation targeting (IT) regime including, among other requirements, the announcement of a formal target for inflation. As a result of successful disinflation, prudent fiscal policy and implementation of reforms, Turkey introduced a full-fledged IT regime in 2006, which brought further transparency to the monetary policy framework. We found that during 2002–2006, among other factors, the developments in Turkey's risk premium played a very significant role in the path of policy rates. We arrived at this conclusion by estimating a Taylor rule describing the policy reaction function of the CBT. During this period exchange rate pass-through to inflation declined, and while capital inflows strengthened the real exchange rate, the nominal exchange rate and the financial markets in general were affected by occasional reversal of capital inflows. We offer a short discussion of CBT reaction to sudden stop episodes under the new monetary regime. Particularly, we ask whether the sharp increase in policy rates in response to the mid-2006 episode was a defense of the currency instead of adherence to an open economy IT regime. We also discuss whether softening of the targeted disinflation path may have been a viable option.

The yield curve and the macroeconomy: Evidence from Turkey

The estimated interest rate rules are reduced form equations and for that reason they do not directly reveal anything about the structural parameters of monetary policy. In this paper, we seek to further elucidate the Brazilian monetary policy under the inflation targeting regime by calibrating Central Bank preferences. More specifically, we calibrate the policymaker’s loss function by choosing the preference parameter values which minimize the deviation between the optimal and actual paths of the basic interest rate (Selic). Our results indicate that the Central Bank has adopted a flexible inflation target regime and placed some greater weight upon inflation stabilization. We also find out that the monetary authority’s concern with interest rate smoothing has been far deeper than with output stabilization

Objective: to analyze the current issues limiting the effectiveness of the traditional inflation targeting regime; to adjust the basic characteristics of this monetary regime which ensures price stability in order to increase the reliability of the central banks’ macroeconomic forecast.Methods: the article uses empirical, statistical, logical, and comparative methods of economic analysis to study the specifics of the central banks’ inflation targeting regime in the context of stimulating fiscal policy.Results: the article considers the basic characteristics of the traditional inflation targeting regime; identifies the disadvantages of the inflation targeting regime; and reviews the scientific literature on the inflation targeting regime functioning within the monetary and fiscal dominance. The main postulates of the fiscal theory of price regulation are identified. A number of recommendatory measures to adjust the current inflation targeting regime are proposed for the Bank of Russia.Scientific novelty: the author showed that raising the key rate without changing the fiscal components in monetary policy cannot reduce inflation even in the short term. Rational expectations and monetary policy, analyzed in the framework of fiscal theory, do not reduce inflation without fiscal support. In countries with inflation targeting, high interest rates can increase risks of servicing public debt and lead to increased budget deficits. The government’s fiscal policy may create fiscal inflation that the central bank will be unable to control and regulate. Given the rapid growth of public debt and budget deficits in the leading countries, it is likely that fiscal inflation will become the main component of a sustained increase in global inflation in the future. If the sovereign debt is denominated in local currency, the borrowing country will be exposed to currency risk, which is transferred by international investors or Russia’s trading partners to debt obligations in Russian currency.Practical significance: the main provisions and conclusions can be used: to regulate interest rate policy (real interest rates), create and accumulate “buffers” of primary surplus related to the costs of attracting and servicing public debt; to develop a mechanism for redistributing real payments differentiated by the maturity of public debt; under the growing fiscal imbalances, government debt can be reduced by increasing inflation and using primary surpluses; during 2022–2024, the monetary policy of the Bank of Russia operates within a fiscal dominance regime, as evidenced by the basic fiscal components missing from the macroeconomic forecast; the fiscal components (such as the size of the budget surplus linked to the yield of public sector bonds, the size of government debt and the amount of budget allocations allocated to the Bank of Russia’s Quarterly Forecast Model) should be included in the budget block of the Bank of Russia to repay the debt, which will make it possible to revise the expected inflation forecast, taking into account fiscal inflation.