Conservatism and rigidity in monetary policy

André de Melo Modenesi ()

Brazilian Journal of Political Economy, 2011, vol. 31, issue 3, 415-434

Abstract: This paper aims at evaluating the conduction of monetary policy after the adoption of inflation targeting. Formation of Selic rate is modeled by estimating a reaction function of the BCB. Results show an excessive degree of interest rate smoothing and a high level of equilibrium interest rate. This evidence supports the belief that Selic rate’s formation is ruled by a conservative behavior. The conservative conduction of monetary policy is related to two distinct features of BCB’s reaction function: i) the great weight of autoregressive components; and, chiefly, ii) a very high level of the equilibrium interest rate. The main conclusion is that, all remaining unchanged, the interest rate would hardly be reduced in a satisfactory way. Massive and chronic deflation would be needed if Selic were to reach a reasonable level, closer to that of rates in the rest of the world. This evidences the need for a debate on the adequacy of current stabilization strategy. JEL Classification: E43; E58.

Keywords: Taylor rule; Selic; conservatism (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
https://centrodeeconomiapolitica.org.br/repojs/ind ... article/view/413/403 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ekm:repojs:v:31:y:2011:i:3:p:415-434:id:413

Access Statistics for this article

More articles in Brazilian Journal of Political Economy from Center of Political Economy
Bibliographic data for series maintained by Brazilian Journal of Political Economy (Brazil) ().