Abstract

This paper critically discusses the inflation targeting regime proposed by orthodox economists, in particular the Taylor Rule. The article describes how the Taylor Rule assumes the argument of money neutrality inherited from the Quantitative Theory of Money. It discusses critically the ways of operation of the rule, and the negative impacts of the interest rate over the potential output. In this sense, the article shows the possible vicious circles of the monetary policy when money is not neutral, as is the case for post-keynesian economists. The relation of interest rates, potential output and the output gap is illustrated in some estimates using the methodology of Vector Auto-regressive in the Brazilian case. 

JEL Classification: E12; E52.