Monetary policy with a volatile exchange rate: The case of Brazil since 1999

Abstract

This paper describes and analyzes Brazilian monetary policy since the beginning of inflation targeting, in 1999. The main hypothesis of the paper is that inflation targeting emerged as the best macroeconomic policy in Brazil in the late 1990s because, in controlling inflation, it ends up stabilizing both the real exchange rate and GDP growth, although not necessarily at an optimal level. Despite this limitation, inflation targeting has proved to be the best framework for Brazilian monetary policy. © 2015 ACES.