Abstract

This article analyses monetary policy during the Cruzado Plan. It is argued that
the establishment of the overnight interest rate at very low level (around 15%/year) was one
of the main factors behind the quick appearance of excess of demand in almost all markets.
This excessively slacken monetary policy was the result of the government’s decision of
transforming indexated public bonds into bonds with a fixed value, assuming that future inflation
would be zero. The monetary policy of the Cruzado Plan is compared to the policies
adopted in Argentina in the first months of the Austral plan, and in Israel from July 1985
on. This comparison reveals that in both cases the process of remonetization of the economy
was done much more gradually than in Brazil, and that in both countries there was not excess
demand in the initial phase of the price freeze.

JEL Classification: E31; E52