ABSTRACT
The control of monetary aggregates in Brazil has to face three large problems: 1) high government budget deficit, 2) the ineffectiveness of the interest rate as a policy instrument in a high inflation environment; 3) unpredictable financial innovation. The first two problems are especially important when one is trying to design stabilization programs. After inflation reaches a certain level, standard monetary policies become powerless. Control of the budget deficit (i.e. a limitation on the use of the inflation tax) becomes a necessary condition for stabilization.
KEYWORDS:
Monetary policy; inflation; stabilisation
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