Inflation targets and exchange rate in Brazil

Vol. 27 No. 3 (2007)

Jul-Sep / 2007
Published March 17, 2020
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Mendonça, Helder Ferreira de. 2007. “Inflation Targets and Exchange Rate in Brazil: An Analysis of the Effect of Market and Administered Prices”. Brazilian Journal of Political Economy 27 (3):431-51.

Inflation targets and exchange rate in Brazil

an analysis of the effect of market and administered prices

Helder Ferreira de Mendonça
Professor do Departamento de Economia da UFF e Pesquisador do CNPq
Brazilian Journal of Political Economy, Vol. 27 No. 3 (2007), Jul-Sep / 2007, Pages 431-451


After surpassed more than a half decade since the adoption of inflation targeting in Brazil, it can be seen that maintaining a high interest rate is inherent to the strategy for the conduction of the monetary policy. The objective of this paper is to show that the present policy for defining the basic interest rate of the economy, based on the response to inflation considering both market prices and administered prices, is onerous for the Brazilian society. Based on findings from empirical evidence in the period 1999-2004, the adoption of a core inflation, a change in the time horizon for definition of targets, and, in common agreement between Banco Central do Brasil and National Treasury a definition of these inflation targets, as a framework to increase efficiency of the monetary regime creating possibilities for reducing the Selic rate is proposed.

JEL Classification: E52; E58.

Keywords: interest rate market prices administrative prices inflation exchange