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Inflation targeting in a developing economy: policy rules, growth, and stability

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  • Carlos Drumond
  • Gabriel Porcile

Abstract

This paper aims to make a contribution to modeling monetary rules in open developing economies, in a context in which international capital flows are a force that has a decisive influence on the sustainable combination of the real exchange rate (RER) and the inflation rate. The intended contributions of the paper are twofold: it extends the Kaleckian model for an open economy to incorporate the effects of capital flows on the RER and interest rate, and it acknowledges the possibility of having different macroeconomic regimes that reflect different preferences for inflation and employment by the government. A monetary rule that considers its effects on both inflation and employment may be more conducive to stability than a regime that solely focuses on inflation. On the other hand, a regime that solely focuses on employment will be unstable if adaptive expectations prevail in the process of wage bargaining.

Suggested Citation

  • Carlos Drumond & Gabriel Porcile, 2012. "Inflation targeting in a developing economy: policy rules, growth, and stability," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(1), pages 137-162.
    • Handle: RePEc:mes:postke:v:35:y:2012:i:1:p:137-162
    DOI: 10.2753/PKE0160-3477350108
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    Citations

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    Cited by:

    1. Emiliano Libman, 2019. "Destabilizing Balance Sheet Effects in the New Consensus Model," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 590-611, October.
    2. Fernando Ferrari Filho, Marcelo Milan, 2018. "Excess Real Interest Rates and the Inflation Targeting Regime in Brazil: Monetary Policy Ineffectiveness and Rentiers¡¯ Interests," Applied Economics and Finance, Redfame publishing, vol. 5(6), pages 84-100, November.
    3. Sébastien Charles & Thomas Dallery & Jonathan Marie, 2014. "Entre tango et sirtaki : incohérence du régime monétaire et insoutenabilité de la dette publique," Revue française d'économie, Presses de Sciences-Po, vol. 0(3), pages 179-224.
    4. Viana, Jr., Dante Baiardo C. & Lourenço, Isabel & Black, Ervin L. & Martins, Orleans Silva, 2023. "Macroeconomic instability, institutions, and earnings management: An analysis in developed and emerging market countries," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 51(C).
    5. Carlos Eduardo Iwai Drumond & Cleiton Silva Jesus & João Basilio Pereima & Hiroyuki Yoshida, 2022. "Alternative monetary policy rules and expectational consistency," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 319-341, April.

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