Optimal Monetary Rules: The Case of Brazil

Charles Almeida, Marco Peres, Geraldo Souza and Benjamin Miranda Tabak ()

No 63, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: Within a dynamic programming approach we derive an optimal rule for the central bank to attain it's inflation targeting goals. The short-run nominal interest rate is used as an instrument to achieve monetary objectives. The model is tested for the Brazilian economy and compared with results found for other countries. Evidence for the estimated feedback interest rule for the Central Bank suggests that the cost of reducing inflation in an open economy is lower than that of a closed economy.

Date: 2003-02
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Published in Applied Economic Letters, Vol. 10, (2003).

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