Monetary policy in Brazil in pandemic times

Vol. 42 No. 1 (2022)

Jan-Mar / 2022
Published January 20, 2022
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Feijó, Carmem, Eliane Cristina Araújo, and Luiz Carlos Bresser-Pereira. 2022. “Monetary Policy in Brazil in Pandemic Times”. Brazilian Journal of Political Economy 42 (1):150-71.

Monetary policy in Brazil in pandemic times

Carmem Feijó
Universidade Federal Fluminense – UFF, Niterói/RJ, Brasil.
Eliane Cristina Araújo
Universidade Estadual de Maringá – UFM, Maringá/PR, Brasil.
Luiz Carlos Bresser-Pereira
Professor emérito da Fundação Getulio Vargas, São Paulo/SP, Brasil.
Brazilian Journal of Political Economy, Vol. 42 No. 1 (2022), Jan-Mar / 2022, Pages 150-171


The paper discusses the determination of inflation in Brazil, especially after the
great recession of 2015-2016, to assess the adequacy of manipulating interest rates to control
the 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 benefits
the 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 investment
rate, which in the case of the Brazilian economy has resulted in a regression in the
productive matrix and productivity stagnation, and both contribute to perpetuating cost pressures
on prices. The empirical analysis corroborates the discussion about recent inflation having
its origin in cost pressures over which the interest rate impact for its control is limited. We
complement the empirical analysis by testing the response to the SELIC interest rate of the
variables used to explain the fluctuation of market prices and administered prices: commodity
price index, exchange rate and activity level. As expected, the impact of an increase in the interest
rate appreciates the exchange rate, favouring inflation control and reducing the level of
activity 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