Markets, Politics, and Learning

Explaining Monetary Policy Innovations in Brazil

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

An increasing number of developing and emerging economies have adopted an inflation targeting framework for monetary policy during the last two decades. This article investigates the politics of inflation targeting by focusing on the case of Brazil. I argue that the decision to implement an inflation targeting system in 1999 did not only reflect the concerns of political leaders with maintaining electoral support and external credibility. In addition, the choice of this new policy approach was informed by a shift in the technical consensus among Brazilian economists about the most effective way to tame inflationary pressures in a context of high capital mobility. The shift to inflation targeting thus reflected a process of social learning among technical elites, facilitated not only by the failure of the previous policy but also by the successful experience of other inflation targeting countries. Moreover, the evidence presented here suggests that, as the first country to adopt inflation targets in the context of an IMF-supported program, Brazil became a test case and a natural experiment for the redefinition of IMF conditionality and surveillance mechanisms. The paper thus sheds light on a process of reciprocal learning, whereby the IMF not only contributed to collective learning but also learned from the Brazilian case, subsequently becoming an active promoter of inflation targeting among developing countries.

Original languageEnglish (US)
Pages (from-to)243-269
Number of pages27
JournalStudies in Comparative International Development
Volume46
Issue number3
DOIs
StatePublished - Sep 2011

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monetary policy
inflation
politics
Brazil
innovation
targeting
learning
market
IMF
conditionality
policy approach
social learning
credibility
economist
surveillance
elite
developing world
developing country
leader
economy

Keywords

  • Brazil
  • Inflation targeting
  • Learning
  • Monetary policy

ASJC Scopus subject areas

  • Political Science and International Relations
  • Development
  • Sociology and Political Science

Cite this

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abstract = "An increasing number of developing and emerging economies have adopted an inflation targeting framework for monetary policy during the last two decades. This article investigates the politics of inflation targeting by focusing on the case of Brazil. I argue that the decision to implement an inflation targeting system in 1999 did not only reflect the concerns of political leaders with maintaining electoral support and external credibility. In addition, the choice of this new policy approach was informed by a shift in the technical consensus among Brazilian economists about the most effective way to tame inflationary pressures in a context of high capital mobility. The shift to inflation targeting thus reflected a process of social learning among technical elites, facilitated not only by the failure of the previous policy but also by the successful experience of other inflation targeting countries. Moreover, the evidence presented here suggests that, as the first country to adopt inflation targets in the context of an IMF-supported program, Brazil became a test case and a natural experiment for the redefinition of IMF conditionality and surveillance mechanisms. The paper thus sheds light on a process of reciprocal learning, whereby the IMF not only contributed to collective learning but also learned from the Brazilian case, subsequently becoming an active promoter of inflation targeting among developing countries.",
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