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The Political Economy of Monetary Institutions in Brazil: The Limits of the Inflation Targeting Strategy, 1999-2005

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  • Matias Vernengo

Abstract

The paper provides a critical analysis of the literature on monetary policy institutions. It presents a critique of the dominant notion of central bank independence, based on the literature on time-inconsistency of monetary policy. An alternative view that emphasizes the role of distributive conflict in establishing monetary policy regimes is developed and used to analyze the Brazilian inflation targeting regime implemented in 1999. The analysis suggests that financial or rentiers interests benefit from the current monetary regime, while manufacturing and workers interests bear the costs.

Suggested Citation

  • Matias Vernengo, 2006. "The Political Economy of Monetary Institutions in Brazil: The Limits of the Inflation Targeting Strategy, 1999-2005," Working Paper Series, Department of Economics, University of Utah 2006_05, University of Utah, Department of Economics.
    • Handle: RePEc:uta:papers:2006_05
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    References listed on IDEAS

    as
    1. Gerald Epstein, 2003. "Alternatives to Inflation Targeting Monetary Policy for Stable and Egalitarian Growth: A Brief Research Summary," Working Papers wp62, Political Economy Research Institute, University of Massachusetts at Amherst.
    2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
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    6. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62, National Bureau of Economic Research, Inc.
    7. Ernesto H. Stein & Jeffry Frieden & Piero Ghezzi, 2000. "Politics and Exchange Rates: A Cross-Country Approach to Latin America," Research Department Publications 3119, Inter-American Development Bank, Research Department.
    8. Stein, Ernesto H. & Salazar, Natalia & Steiner, Roberto & Díaz-Bonilla, Eugenio & Bonomo, Marco & Jaramillo, Juan C. & Schamis, Hector E. & Pascó-Front, Alberto & Ghezzi, Piero & Terra, Maria Cristina, 2001. "The Currency Game: Exchange Rate Politics in Latin America," IDB Publications (Books), Inter-American Development Bank, number 391, November.
    9. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274, National Bureau of Economic Research, Inc.
    10. Raford Boddy & James Crotty, 1975. "Class Conflict and Macro-Policy: The Political Business Cycle," Review of Radical Political Economics, Union for Radical Political Economics, vol. 7(1), pages 1-19, April.
    11. Bénédicte Vidaillet & V. d'Estaintot & P. Abécassis, 2005. "Introduction," Post-Print hal-00287137, HAL.
    12. James K. Galbraith, 1997. "Time to Ditch the NAIRU," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 93-108, Winter.
    13. Ernesto H. Stein & Natalia Salazar & Roberto Steiner & Eugenio Díaz-Bonilla & Marco Bonomo & Juan C. Jaramillo & Hector E. Schamis & Alberto Pascó-Front & Piero Ghezzi & Maria Cristina Terra & José De, 2001. "The Currency Game: Exchange Rate Politics in Latin America," IDB Publications (Books), Inter-American Development Bank, number 77398 edited by Ernesto H. Stein & Jeffry Frieden, February.
    14. John Smithin, 1996. "Macroeconomic Policy and the Future of Capitalism," Books, Edward Elgar Publishing, number 764.
    15. Alfredo Saad-Filho & Maria de Lourdes R. Mollo, 2002. "Inflation and stabilization in Brazil: a political economy analysis," Review of Radical Political Economics, Union for Radical Political Economics, vol. 34(2), pages 109-135, June.
    16. Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Matías Vernengo (ed.), Monetary Integration and Dollarization, chapter 8, Edward Elgar Publishing.
    17. repec:idb:brikps:77398 is not listed on IDEAS
    18. Bernhard, William & Broz, J. Lawrence & Clark, William Roberts, 2002. "The Political Economy of Monetary Institutions," International Organization, Cambridge University Press, vol. 56(4), pages 693-723, October.
    19. Fernando J. Cardim De Carvalho, 1995. "The Independence of Central Banks: A Critical Assessment of the Arguments," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 18(2), pages 159-175, December.
    20. Matías Vernengo (ed.), 2006. "Monetary Integration and Dollarization," Books, Edward Elgar Publishing, number 3483.
    21. William D. Nordhaus, 1975. "The Political Business Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(2), pages 169-190.
    22. Fernando J. Cardim De Carvalho, 1996. "The Independence of Central Banks: A Critical Assessment of the Arguments," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(2), pages 159-175, January.
    23. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, April.
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    Cited by:

    1. 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.
    2. Thereza Balliester Reis, 2018. "Why Are Policy Real Interest Rates So High in Brazil? An Analysis of the Determinants of the Central Bank of Brazil’s Real Interest Rate," International Journal of Political Economy, Taylor & Francis Journals, vol. 47(2), pages 178-198, April.
    3. Matias Vernengo, 2011. "The Brazilian Economy after Lula: What to Expect?," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(01), pages 17-22, March.

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    More about this item

    Keywords

    Inflation Targeting; Central Bank Behavior; Distributive Conflict;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other

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