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Fiscal effect from inflation targeting: the Brazilian experience

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Abstract:

This article evaluates the presence of possible unpleasant effects on the fiscal side due to a disinflation process initiated with the adoption of inflation targeting in Brazil. The analysis for this country deserves attention because, credibility is still being built and Brazil represents a potential laboratory experiment in which the effects of an adoption of inflation targeting, after more than half a decade, can be studied. Under this perspective, an empirical analysis based on OLS, GMM and VAR methods is made. The findings denote that the development of credibility is a powerful instrument for eliminating the unpleasant effects from a tight monetary policy (necessity of increasing primary surplus) on public debt.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840701721398

Affiliations: 1: Department of Economics, Fluminense Federal University, Niteroi, Brazil 2: Central Bank of Brazil, Rio de Janeiro, Brazil

Publication date: March 1, 2009

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