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Inflation targeting and its adequacy to the brazilian case: the costs of maintenance of the regimen

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Author(s):
Roberta Loboda Biondi
Total Authors: 1
Document type: Master's Dissertation
Press: Ribeirão Preto.
Institution: Universidade de São Paulo (USP). Faculdade de Economia, Administração e Contabilidade de Ribeirão Preto (PCARP/BC)
Defense date:
Examining board members:
Rudinei Toneto Junior; Milton Barossi Filho; Carlos Eduardo Soares Gonçalves
Advisor: Rudinei Toneto Junior
Abstract

Inflation targeting is a monetary policy strategy used by several developed and developing countries which aims to link together the economic actors? expectation related to the future behaviour of the inflation rate. According to specialized literature, inflation targeting tends to bring an improvement over product behaviour, besides bringing positive effects over inflation rates of those countries that make use of it. The focal point of this dissertation is to empirically analyse the impacts caused by the adoption of inflation targeting system on countries? inflation rate and real GDP growth, distinguishing effects on developed countries from those on developing ones. Defining the group made of countries that do use inflation targeting as treatment group and the group made of countries that do no use it as control group, two methodological procedures were accomplished: differences-in-differences estimation and panel data analysis. As the results of differences-in-differences estimator did not seem robust, panel analysis was also consummated. These results showed that inflation targeting adoption causes significative impacts on inflation rate and GDP growth in countries that adopt it. In developed countries, the adoption of such monetary policy strategy tends to increase the mean inflation rate, which also occurs with the GDP growth. In the other hand, developing countries that adopted inflation targeting tend to present mean inflation rate and GDP growth substantially lower than developing countries that do not make use of it. Though, it is possible to conclude that exists a maintenance cost of inflation targeting system for developing countries regarding the loss in GDP growth. This cost could be related to the greater difficulty that these countries face when forming credibility, which forces them to follow restrictive monetary policies and also to define an strict outline for inflation targeting. (AU)