Problems of monetary control in Brazil
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
JEL Classification: E31; E52.
Keywords: Monetary policy inflation stabilisation