CENTRAL BANK PREFERENCES AND MONETARY RULES UNDER THE INFLATION TARGETING REGIME IN BRAZIL

Edilean Kleber da Silva and Marcelo Savino Portugal

No 07-2010, Working Papers from Universidade de São Paulo, Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto

Abstract: The estimated interest rate rules are reduced form equations and for that reason they do not directly reveal anything about the structural parameters of monetary policy. In this paper, we seek to further elucidate the Brazilian monetary policy under the inflation targeting regime by calibrating Central Bank preferences. More specifically, we calibrate the policymaker’s loss function by choosing the preference parameter values which minimize the deviation between the optimal and actual paths of the basic interest rate (Selic). Our results indicate that the Central Bank has adopted a flexible inflation target regime and placed some greater weight upon inflation stabilization. We also find out that the monetary authority’s concern with interest rate smoothing has been far deeper than with output stabilization.

Keywords: Central Bank preferences; Optimal monetary policy; Inflation target (search for similar items in EconPapers)
JEL-codes: C61 E52 E58 (search for similar items in EconPapers)
Date: 2010
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