Monetary policy in Brazil in pandemic times

Carmem Feijo, Eliane Araujo and Luiz Carlos Bresser-Pereira ()

Brazilian Journal of Political Economy, 2022, vol. 42, issue 1, 150-171

Abstract: The paper discusses the determination of inflation in Brazil, especially after thegreat recession of 2015-2016, to assess the adequacy of manipulating interest rates to controlthe rise in prices due to permanent cost pressure. The burden of using the interest rate to fight cost inflation is to create a highly conventional level of the real interest rate, which benefitsthe rentier class in a financialized economy. In the light of the post-Keynesian macroeconomics,a high-interest rate convention keeps the economy with a low growth rate and a low investmentrate, which in the case of the Brazilian economy has resulted in a regression in theproductive matrix and productivity stagnation, and both contribute to perpetuating cost pressureson prices. The empirical analysis corroborates the discussion about recent inflation havingits origin in cost pressures over which the interest rate impact for its control is limited. Wecomplement the empirical analysis by testing the response to the SELIC interest rate of thevariables used to explain the fluctuation of market prices and administered prices: commodityprice index, exchange rate and activity level. As expected, the impact of an increase in the interestrate appreciates the exchange rate, favouring inflation control and reducing the level ofactivity but has no impact on the commodity price index. JEL Classification: E12; E31; E43; E52.

Keywords: Cost inflation; Keynesian monetary policy; inertial inflation; Brazilian economy (search for similar items in EconPapers)
Date: 2022
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