A simple model for inflation targeting in Brazil

Detalhes bibliográficos
Autor(a) principal: Freitas, Paulo Springer de
Data de Publicação: 2002
Outros Autores: Muinhos, Marcelo Kfoury
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Economia Aplicada
Texto Completo: https://www.revistas.usp.br/ecoa/article/view/219887
Resumo: Based on a 6 equation model by Haldane and Battini (1999), we estimated a Phillips and an IS equations for Brazil after the Real Plan, in order to study the transmission mechanism of the monetary policy. The results show that interest rate affects output gap with a lag of one quarter and output is positively related to inflation with a one lag only. The devaluation of the nominal exchange rate has also a contemporaneous effect on inflation. We also made stochastic simulations in order to depict the inflation and output gap volatility loci under alternative Taylor-type rules and under an optimal rule, which minimizes a loss function that depends on a weighted average of inflation and output gap variances. The stochastic simulation showed that when compare to the variance in inflation, output gap variance appears to be more sensitive to the weights given in the loss function. It also showed that optimization procedures longer than 6 periods are inefficient and the most efficient frontier horizons are set within the range of 2 to 4 periods. Finally, sub-optimal but simple rules, like Taylor type rules can perform as well as the optimal ones, depending on the parameters chosen and on the preferences ofthe Central Bank.
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spelling A simple model for inflation targeting in Brazilinflation targetingtransmission mechanismBased on a 6 equation model by Haldane and Battini (1999), we estimated a Phillips and an IS equations for Brazil after the Real Plan, in order to study the transmission mechanism of the monetary policy. The results show that interest rate affects output gap with a lag of one quarter and output is positively related to inflation with a one lag only. The devaluation of the nominal exchange rate has also a contemporaneous effect on inflation. We also made stochastic simulations in order to depict the inflation and output gap volatility loci under alternative Taylor-type rules and under an optimal rule, which minimizes a loss function that depends on a weighted average of inflation and output gap variances. The stochastic simulation showed that when compare to the variance in inflation, output gap variance appears to be more sensitive to the weights given in the loss function. It also showed that optimization procedures longer than 6 periods are inefficient and the most efficient frontier horizons are set within the range of 2 to 4 periods. Finally, sub-optimal but simple rules, like Taylor type rules can perform as well as the optimal ones, depending on the parameters chosen and on the preferences ofthe Central Bank.Universidade de São Paulo, FEA-RP/USP2002-02-10info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionapplication/pdfhttps://www.revistas.usp.br/ecoa/article/view/21988710.11606/1413-8050/ea219887Economia Aplicada; Vol. 6 Núm. 1 (2002); 31-48Economia Aplicada; Vol. 6 No. 1 (2002); 31-48Economia Aplicada; v. 6 n. 1 (2002); 31-481980-53301413-8050reponame:Economia Aplicadainstname:Universidade de São Paulo (USP)instacron:USPenghttps://www.revistas.usp.br/ecoa/article/view/219887/200758Copyright (c) 2002 Economia Aplicadahttp://creativecommons.org/licenses/by-nc/4.0info:eu-repo/semantics/openAccessFreitas, Paulo Springer de Muinhos, Marcelo Kfoury 2023-12-08T13:52:26Zoai:revistas.usp.br:article/219887Revistahttps://www.revistas.usp.br/ecoaPUBhttps://www.revistas.usp.br/ecoa/oai||revecap@usp.br1980-53301413-8050opendoar:2023-12-08T13:52:26Economia Aplicada - Universidade de São Paulo (USP)false
dc.title.none.fl_str_mv A simple model for inflation targeting in Brazil
title A simple model for inflation targeting in Brazil
spellingShingle A simple model for inflation targeting in Brazil
Freitas, Paulo Springer de
inflation targeting
transmission mechanism
title_short A simple model for inflation targeting in Brazil
title_full A simple model for inflation targeting in Brazil
title_fullStr A simple model for inflation targeting in Brazil
title_full_unstemmed A simple model for inflation targeting in Brazil
title_sort A simple model for inflation targeting in Brazil
author Freitas, Paulo Springer de
author_facet Freitas, Paulo Springer de
Muinhos, Marcelo Kfoury
author_role author
author2 Muinhos, Marcelo Kfoury
author2_role author
dc.contributor.author.fl_str_mv Freitas, Paulo Springer de
Muinhos, Marcelo Kfoury
dc.subject.por.fl_str_mv inflation targeting
transmission mechanism
topic inflation targeting
transmission mechanism
description Based on a 6 equation model by Haldane and Battini (1999), we estimated a Phillips and an IS equations for Brazil after the Real Plan, in order to study the transmission mechanism of the monetary policy. The results show that interest rate affects output gap with a lag of one quarter and output is positively related to inflation with a one lag only. The devaluation of the nominal exchange rate has also a contemporaneous effect on inflation. We also made stochastic simulations in order to depict the inflation and output gap volatility loci under alternative Taylor-type rules and under an optimal rule, which minimizes a loss function that depends on a weighted average of inflation and output gap variances. The stochastic simulation showed that when compare to the variance in inflation, output gap variance appears to be more sensitive to the weights given in the loss function. It also showed that optimization procedures longer than 6 periods are inefficient and the most efficient frontier horizons are set within the range of 2 to 4 periods. Finally, sub-optimal but simple rules, like Taylor type rules can perform as well as the optimal ones, depending on the parameters chosen and on the preferences ofthe Central Bank.
publishDate 2002
dc.date.none.fl_str_mv 2002-02-10
dc.type.driver.fl_str_mv info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
format article
status_str publishedVersion
dc.identifier.uri.fl_str_mv https://www.revistas.usp.br/ecoa/article/view/219887
10.11606/1413-8050/ea219887
url https://www.revistas.usp.br/ecoa/article/view/219887
identifier_str_mv 10.11606/1413-8050/ea219887
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv https://www.revistas.usp.br/ecoa/article/view/219887/200758
dc.rights.driver.fl_str_mv Copyright (c) 2002 Economia Aplicada
http://creativecommons.org/licenses/by-nc/4.0
info:eu-repo/semantics/openAccess
rights_invalid_str_mv Copyright (c) 2002 Economia Aplicada
http://creativecommons.org/licenses/by-nc/4.0
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.publisher.none.fl_str_mv Universidade de São Paulo, FEA-RP/USP
publisher.none.fl_str_mv Universidade de São Paulo, FEA-RP/USP
dc.source.none.fl_str_mv Economia Aplicada; Vol. 6 Núm. 1 (2002); 31-48
Economia Aplicada; Vol. 6 No. 1 (2002); 31-48
Economia Aplicada; v. 6 n. 1 (2002); 31-48
1980-5330
1413-8050
reponame:Economia Aplicada
instname:Universidade de São Paulo (USP)
instacron:USP
instname_str Universidade de São Paulo (USP)
instacron_str USP
institution USP
reponame_str Economia Aplicada
collection Economia Aplicada
repository.name.fl_str_mv Economia Aplicada - Universidade de São Paulo (USP)
repository.mail.fl_str_mv ||revecap@usp.br
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