Inflation targeting—when central bank policies set specific inflation rate objectives—is widely used by both developed and developing countries around the world (although not by the United States or the European Central Bank). This collection of original essays looks at how Brazil's policy of inflation targeting, coupled with a floating exchange rate, survived a series of severe economic shocks and examines the policy lessons that can be drawn from Brazil's experience.
After a successful start in early 1999, Brazil's policy regime had to manage mounting difficulties, including a sudden reversal of capital flows and its effects on the exchange rate and public debt, the contagion of Argentina's severe economic problems, a domestic energy crisis, and the political uncertainty of the 2002 presidential campaign. The contributors, prominent Brazilian and international economists, draw important lessons from Brazil's experience, including the necessity of accompanying monetary policy with fiscal improvement, the trade-offs involved in dollar-linked debt, the importance of fiscal institutions in an emerging market economy, and the importance of keeping inflation under control.
About the Editors
Francesco Giavazzi is Professor of Economics at Bocconi University and Visiting Professor at MIT. He is the coauthor (with Alberto Giovannini) of Limiting Exchange Rate Flexibility: The European Monetary System (MIT Press, 1989).
Ilan Goldfajn is Professor of Economics at Pontificia Unversidade Cátolica do Rio de Janeiro and a partner at Gavea Investimentos. He was Deputy Governor for Economic Policy at the Central Bank of Brazil from 2000 to 2003.
Santiago Herrera is a Lead Economist at the World Bank. He was Deputy Minister of Finance and Director of the National Budget Office in Colombia.
"After emerging market crises forced countries off of their exchange rate targets in the 1990s, inflation targeting became the popular alternative, with Brazil as perhaps the most important example. This book, written by some of the most eminent and relevant international economists, is a timely look at how well the new regime has performed in the face of current challenges."
—Jeffrey A. Frankel, Harpel Chair of Capital Formation and Growth, Kennedy School of Government, Harvard University
"This book provides the definitive analysis of a fascinating episode in the recent history of macroeconomic policy making. The story of Brazil's struggle to maintain its inflation targeting regime in the face of uncertainty about the direction of economic policy and a sudden outflow of foreign capital contains valuable lessons for all economists and policy analysts concerned with the way in which monetary and fiscal policy choices affect each other, and with the way in which policy commitments affect expectations. Both the events and the analyses offered in this book deserve to be widely studied."
—Michael Woodford, John Bates Clark Professor of Political Economy, Columbia University