Abstracts
This paper conducts simulations of the augmented Taylor rule (with an added exchange rate term). It has also been made to analyze the response from external shocks in a simple Inflation Targeting model with trade balance equations. In contrast to Ball (2000), when the exchange rate is included in the Taylor rule, output volatility increases after a negative shock to the capital inflow. The paper also studies the pass-through from the exchange rate devaluation to inflation considering the recent change in the foreign exchange regime in Brazil. Econometric estimations were performed using the specifications of the pass-through suggested by Goldfajn and Werlang (2000).
pass-through; floating exchange rate; Taylor rule
Este trabalho conduz algumas simulações da regra de Taylor ampliada (com a taxa de câmbio adicionada). Essas simulações foram feitas também para analisar choques externos em um modelo simples de Metas de Inflação com equações de balança comercial. Em contraste com Ball (2000), quando a taxa de câmbio é incluída na regra de Taylor, a volatilidade do produto aumenta após um choque negativo no fluxo de capitais. Além disso, o paper apresenta um estudo do pass-through da desvalorização da taxa de câmbio para a inflação considerando a mudança recente no regime das taxas de câmbio no Brasil. Estimativas econométricas foram feitas usando as especificações do pass-through sugeridas por Goldfajn e Werlang (2000).
pass-through; flutuação da taxa de câmbio; regra de Taylor
Inflation targeting in an open financially integrated emerging economy: the case of Brazil
Marcelo Kfoury Muinhos
Doutor em Economia - Universidade de Cornell e Pesquisador do Banco Central do Brasil
ABSTRACT
This paper conducts simulations of the augmented Taylor rule (with an added exchange rate term). It has also been made to analyze the response from external shocks in a simple Inflation Targeting model with trade balance equations. In contrast to Ball (2000), when the exchange rate is included in the Taylor rule, output volatility increases after a negative shock to the capital inflow. The paper also studies the pass-through from the exchange rate devaluation to inflation considering the recent change in the foreign exchange regime in Brazil. Econometric estimations were performed using the specifications of the pass-through suggested by Goldfajn and Werlang (2000).
Key words: pass-through, floating exchange rate, Taylor rule
JEL Classification
E44, E58, F31, F32
RESUMO
Este trabalho conduz algumas simulações da regra de Taylor ampliada (com a taxa de câmbio adicionada). Essas simulações foram feitas também para analisar choques externos em um modelo simples de Metas de Inflação com equações de balança comercial. Em contraste com Ball (2000), quando a taxa de câmbio é incluída na regra de Taylor, a volatilidade do produto aumenta após um choque negativo no fluxo de capitais. Além disso, o paper apresenta um estudo do pass-through da desvalorização da taxa de câmbio para a inflação considerando a mudança recente no regime das taxas de câmbio no Brasil. Estimativas econométricas foram feitas usando as especificações do pass-through sugeridas por Goldfajn e Werlang (2000).
Palavras-chave: pass-through, flutuação da taxa de câmbio, regra de Taylor.
Full text available only in PDF format.
Texto completo disponível apenas em PDF.
(Recebido em setembro de 2002. Aceito para publicação em março de 2004).
The author would like to thank without implications Gil Riella for excellent contributions in running the simulations, Ilan Goldfajn, Pedro Miranda, Edwin Truman, Joaquim Andrade, Maria Beatriz Costa, Thais Porto Ferreira and José Pedro Fachada for reading early drafts of this paper. The views expressed in this work are those of the author and not reflect those of the Banco Central do Brasil or its members.
Email and address: marcelo.kfoury@bcb.gov.br. Research Department 9º floor SBS Quadra 3 Bl.B 70074-900 Brasilia DF- Brazil Telefone 61 414 2748 Fax 61 226 0767
- BALL, Laurence. Policy rules and external shocks. NBER Working Paper Series 7910, Cambridge Ma, 2000.
- BOGDANSKI, Joel; TOMBINI, Alexandre; WERLANG, Sergio R. C. Implementing inflationtargeting in Brazil. Banco Central do Brasil Working Paper Series n. 1, Brasília,
- CALVO; REINHART. Fear of floating University of Maryland, 2000. Mimeografado.
- GOLDFAJN, Ilan; OLIVARES, Gino. Can flexible exchange rates still "work" in financially open economies. G-24 Discussion Paper N. 8, 2001.
- GOLDFAJN, Ilan; WERLANG, Sergio R.C. The pass-through from depreciation to inflation: a panel study. Banco Central do Brasil Working Paper Series n. 5, Brasília, 2000.
- HAUSSMANN, Ricardo; PANIZZA, Ugo; STEIN Ernesto. Why do countries float the way they float. Working Paper n. 418, Inter-American Development Bank, 1999.
- MISHKIN, Frederic. Inflation targeting in emerging market countries. NBER Working Paper Series 7618, Cambridge Ma, 2000.
- MUINHOS, Marcelo; FREITAS, Paulo; ARAÚJO, Fabio. Uncovered interest parity with fundamentals: a Brazilian exchange rate forecast model. Banco Central do Brasil Working Paper Series n. 19, Brasília, 2000.
- RODRICK, Dani. Exchange rate regimes and institutional arrangements in the shadow of capital flows Kennedy School of Government, Harvard University, 2000. Mimeografado.
Publication Dates
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Publication in this collection
06 Oct 2009 -
Date of issue
June 2004
History
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Accepted
Mar 2004 -
Received
Sept 2002
