Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy

Andreza Palma () and Marcelo Savino Portugal

Journal of Policy Modeling, 2014, vol. 36, issue 5, 824-839

Abstract: The main objective of this paper is to estimate the preferences of the Central Bank of Brazil after the inflation targeting regime (January 2000 to December 2013), using a DSGE model with microeconomic foundations for a small open economy, based especially on the work of Kam et al. (2009). The model used in this study considers that the Central Bank minimizes a loss function, taking into account the deviation of inflation from its target, output stabilization, the interest rate smoothing and, unlike the previous works, the exchange rate. The results show that the major concern of the monetary authority in the period was the stabilization of inflation, followed by interest rate smoothing, exchange stabilization and, finally, output stabilization. The large value for the exchange rate smoothing parameter suggests the presence of fear of floating in the Brazilian case. An improved inflation targeting strategy should allow for less Central Bank intervention in the exchange rate market.

Keywords: Monetary policy; Central Bank preferences; Bayesian estimation; DSGE (search for similar items in EconPapers)
JEL-codes: C11 E12 E52 E6 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: PREFERENCES OF THE CENTRAL BANK OF BRAZIL UNDER THE INFLATION TARGETING REGIME: ESTIMATION USING A DSGE MODEL FOR A SMALL OPEN ECONOMY (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:36:y:2014:i:5:p:824-839

DOI: 10.1016/j.jpolmod.2014.08.004

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