Real Interest Rate Targeting: An Example From Brazil

Author: Mr. Eric V. Clifton

Volume/Issue: Volume 1990 Issue 111

Publication date: December 1990

ISBN: 9781451945041

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Inflation , Money and Monetary Policy , WP , interest rate , real interest rate policy , targeting procedure , policy rule , interest rate rule , government securities market , target rule , period price level , Real interest rates , Inflation , Interest rate policy

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Summary

This paper examines a real interest rate targeting procedure based on lagged inflation similar to the policy followed by the Brazilian monetary authorities during the period November 1986 to December 1988, focusing on the issue of the determinacy of the price level. For the specific model examined, the analysis suggests that such a targeting procedure would not suffer from the frequently noted defect of nominal interest rate targeting rules of leaving the conditional expectation of the next period price level undetermined.