Capital Flows and Controls in Brazil: What Have We Learned?

This paper analyzes the relationship between capital account liberalization and macroeconomic volatility using Brazil as a case study. The paper provides several stylized facts regarding the evolution of capital flows and controls in Brazil in the last three decades. We conclude that, notwithstanding the financial crises and macroeconomic volatility of the recent past, capital account liberalization and the floating exchange regime have led to a more resilient economy. Further liberalization of the capital account is warranted and should be accompanied by a broad range of reforms to improve and foster stronger institutions.

Inflation Targeting in Emerging Market Economies

This paper assesses inflation targeting in emerging market economies (EMEs), and develops applied prescriptions for the conduct of monetary policy and inflation-targeting design in EMEs. We verify that EMEs have faced more acute trade-offs - higher output and inflation volatility - and worse performance than developed economies. These results stem from more pronounced external shocks, lower credibility, and lower level of development of institutions in these countries. In order to improve their performance, we recommend high levels of transparency and communication with the public and the development of more stable institutions. At an operational level, we propose a procedure that a central bank under inflation targeting can apply and communicate when facing strong supply shocks, and suggest a monitoring structure for an inflation-targeting regime under an IMF program.

Optimal Monetary Policy, Gains from Commitment, and Inflation Persistence

Using a New Keynesian framework, this paper compares the effects on the welfare of optimal monetary policies under commitment and discretion, and examines the consequences of the presence of inflation persistence. A policy under commitment generates a better-weighted average of the variances of output and inflation ("dynamic gains"), and eliminates the inflationary bias. Commitment usually delivers a lower variance of inflation and a higher variance of output than those under discretion. The effect of the presence of inflation persistence on the dynamic gains from commitment is somehow surprising: the benefits are increasing in the degree of inflation persistence for moderate levels of persistence. On the other hand, inflation persistence reduces the inflationary bias. Furthermore, under "restricted commitment", were the solution is restricted to be within the same family of rules of the discretionary case, the gains are substantially inferior to those from commitment.

Brazil: taming inflation expectations

This paper analyzes monetary policy implementation and convergence of inflation and inflation expectations to the targets in Brazil after the crisis in 2002. It covers the initial disinflation and subsequent economic recovery, followed by the inflation rebound and corresponding policy response, and finally the consolidation of disinflation in 2005-06. Monetary policy implementation and the overall improvement in macroeconomic fundamentals have contributed substantially to create a more stable and predictable environment, evidenced by signs of reduction in inflation uncertainty. Furthermore, econometric exercises indicate the critical role played by the targets as attractors for inflation expectations.

Output Gap and GDP in Brazil: a real-time data analysis

Economic agents make decisions using real-time data. However, recent literature has shown that several economic activity measures go through important revisions over time, impairing the reliability of real-time data. We organize a real-time dataset for Brazil’s GDP, and assess the revisions of GDP growth and the output gap. We show that GDP growth revisions are substantial, with a 0.7 p.p. mean absolute revision for the quarter-over-quarter growth, although the revisions become less important for four-quarter changes. To assess output gap revisions, we use four methods to estimate the output gap: Hodrick-Prescott filter, linear trend, quadratic trend, and Harvey-Clark model of unobservable components. The output gap revisions are substantial in all methods, with absolute mean revisions between 0.6 p.p. and 2.3 p.p. In three out of the four methods, the revisions implied changes in the output gap sign in 30 percent or more of the cases. In general, both the GDP data revision and the sample increase are relevant sources of output gap revisions. Key words: Real-time data; Output gap; Gross Domestic Product; Business cycle; Brazil. JEL classification: C82; E32.

Inflation targeting in emerging market economies

노트 : Volume Title: NBER macroeconomics annual 2003, volume 18Title: Inflation targeting in emerging market economie

Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility

This paper assesses the challenges faced by the inflation-targeting regime in Brazil. The confidence crisis in the future performance of the Brazilian economy and the increase in risk aversion in international markets were responsible for a sudden stop of capital inflows in 2002 that caused a significant depreciation of the exchange rate. The inflation-targeting framework has played a critical role in macroeconomic stabilization. We stress two important challenges: construction of credibility 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 inflation persistence; and iv) the exchange rate pass-through for "administered or monitored" prices is two times higher than for "market" prices.