Central Bank performance in a stable economy: is it desirable to adopt inflation targets in Brazil?

ABSTRACT

This article deals with the possible adoption of explicit inflation targets by monetary authorities in Brazil, following the example of the experiences of New Zealand, Canada, the United Kingdom, Sweden, Finland, Australia and Spain. Inflation targets would work, first, as a coordination device for those involved in the price and wage setting process, and second, as a transparent aim of the monetary policy, whose performance would be evaluated by the adherence of inflation to the targets. The paper shows the motivations that explain the adoption of the regime, discusses its theoretical fundamentals, and analyzes the problems and trade-offs related to its implementation in practice. Finally, based on the theory and the international experience, some arguments in favour of the adoption of the regime of inflation targets in Brazil are developed.

KEYWORDS:
Inflation targets; stabilization; central bank; monetary policy