André de Melo Modenesi

Quinze anos de rigidez monetária no Brasil pós-Plano Real: uma agenda de pesquisa

Fifteen years of monetary rigidity in Brazil after the Real Plan: a research agenda.The paper makes a review of literature and a research agenda on the anomaly of Brazilian monetary policy. Following a retrospect of the first 15 years after the Real Plan, there is a review of studies aiming to explain the high real interest rate. None of the summarized theses can completely explain the phenomenon. The main research opportunities are: deepening of empirical evidence of monetary policy efficacy loss; improvement in mensuration of its inefficacy; and improvement of alternative instruments to control inflation. The field of political economy is also fertile. One should assess the relevance of oligopolies as an explaining factor of persistence of high inflation.

A modified Taylor rule for the Brazilian economy: convention and conservatism in eleven years of inflation targeting (2000-2010)

With the purpose of evaluating Brazilian Central Banks (BCB) conduct of monetary policy after the adoption of inflation targeting (IT), we estimate a modified version of the Taylor rule for the Brazilian economy in the period 2000-2010. The term modified refers to an important innovation with regard to the reviewed literature: the inclusion of a proxy for the international interest rate in the original equation. This study reinforces and expands results achieved by Modenesi (2011) and also provides a new evidence that the BCB reacts to foreign interest rates when setting its basic rate (Selic). The BCB has reduced autonomy: Selic is endogenous not only to domestic conditions (inflation and output gaps) but also to foreign interest rates (measured by the LIBOR). The evidence provided might support the argument that BCB policy is ruled by a proconservative convention substantiated in the adoption of a Taylor rule containing three distinctive features: (1) a high degree of interest rate smoothness; (2) a high pure domestic equilibrium interest rate; and (3) high interest rate differential. Items (2) and (3) largely explain the overvaluation of the real, a key element of price stabilization.

Conservadorismo e rigidez na política monetária: uma estimativa da função de reação do BCB (2000-2007)

A adocao da regra de Taylor e peca fundamental do Novo Consenso em Politica Monetaria, marcado pelo reconhecimento, realizado tardiamente pela ortodoxia, de que a base monetaria e endogena. Com base na literatura resenhada, e estimada a funcao de reacao do Banco Central do Brasil (BCB) para avaliar a conducao da politica monetaria brasileira, apos a adocao do regime de metas de inflacao. A funcao de reacao do BCB possui caracteristicas que corroboram a tese de que a formacao da taxa Selic e pautada por uma convencao pro-conservadorismo na conducao da politica monetaria, como propoem Nakano e Erber. Os resultados apontam excessiva lentidao nos movimentos dos juros e um elevado patamar da taxa de equilibrio, confirmando a tese de que o BCB: a) incorporou a convencao de que ha um elevado piso para a Selic; e b) da pouca atencao ao estado da economia (o desvio da inflacao em relacao a meta e o hiato do produto) imprimindo demasiado gradualismo na determinacao da taxa basica. A principal conclusao e que, mantido o quadro atual, a taxa de juros dificilmente se reduzira de forma satisfatoria. Seria necessaria uma drastica deflacao para que a Selic caisse significativamente. Isso aponta para a necessidade de um debate sobre a adequacao da atual estrategia de estabilizacao. The adoption of the Taylor rule is an essential element of the New Consensus on Monetary Policy, characterized by the recent acceptance, by the orthodoxy, of money stock endogeneity. In line with the reviewed literature, a reaction function of the Brazilian Central Bank (BCB) is estimated with a view to evaluating the conduction of monetary policy after the 1999 adoption of the inflation targeting regime in Brazil. The BCB’s reaction function has some features that corroborate the thesis under which the formation of the Selic rate is ruled by a pro-conservatism convention in the conduction of monetary policy, as affirmed by Nakano and Erber. Results show an excessive slowness in interest movement and a high level of the equilibrium rate, confirming the thesis that the BCB a) incorporated the convention according to which Selic must have a high floor; and b) is inattentive to the state of the economy (the inflation and output gaps), and expresses an excessive gradualism in determining the overnight rate. The main conclusion is that, if the present situation continues, the interest rate will hardly be reduced in a satisfactory way. This evidences the need for a debate on the adequation of the present stabilization strategy.

The tale of the contagion of two crises and policy responses in Brazil: a case of (Keynesian) policy coordination?

Abstract This paper aims to assess the reasons for the economic slowdown in Brazil after 2010. In particular, it contributes to a better understanding of why Brazil’s countercyclical policies succeeded in handling the contagion resulting from the Lehman Brothers crisis but did not manage the contagion caused by the euro crisis. The paper examines what we understand by Keynesian policies and the importance of policy coordination and then evaluates the extent to which Brazil used coordinated economic policies in the face of both crises. The main hypothesis of the paper is that the difference in the performance of the countercyclical policies in both crises is related mainly to Brazil’s lack of coordination of macroeconomic policies in 2011–12, especially the implementation of fiscal policy.

Estabilidad de precios bajo metas de inflación en Brasil: análisis empírico del mecanismo de transmisión de la política monetaria con base en un modelo VAR 2000-2008

Con el objetivo de producir un cuerpo de evidencia empirica que permita evaluar los costos y beneficios de la politica brasilena de estabilizacion se realizo un analisis econometrico del mecanismo de transmision de la politica monetaria desde la adopcion del regimen de metas de inflacion (en adelante RMI) hasta la crisis de las subprime (2000-2008). La tasa de cambio ha sido el principal canal de transmision. Ademas, la sensibilidad de la inflacion es baja con respecto a la tasa basica de interes (tasa Selic), por lo que una elevacion de esta genera beneficios (caida de la inflacion) relativamente pequenos. Sin embargo, un aumento de la misma tiene costos sustanciales: reduccion de la actividad economica, apreciacion cambiaria e incremento en la deuda publica. La baja sensibilidad de la inflacion con respecto a la tasa de interes se interpreta como resultado de problemas en el mecanismo de transmision: las imperfecciones en esta reducen la eficiencia de la politica monetaria. La estabilidad de precios, bajo el RMI, requiere una politica monetaria demasiado rigida. El resultado final es, por un lado, que la inflacion dificilmente cede y, por otro, que se intensifica la alta tasa de interes. La conclusion es que el equilibrio entre los costos y los beneficios de la politica monetaria es desfavorable.

Development conventions: theory and the case of Brazil in the latter half of the twentieth century

Abstract: For Keynes, convention is a device used to circumvent uncertainty. For French conventionalists (FCs), convention coordinates behavior in “complex market situations.” Brazilian economist Fabio Erber contributed to this debate by formulating a concept of development convention (DC) and thus making this subject particularly interesting to economists and policymakers in developing countries. Because development refers to long-term structural changes, DCs are identified over the long term. Further, multiple DCs can coexist in a given society; however, only one can be hegemonic or dominant at any particular point in time. DCs can be revealed by examining the historical evidence pertaining to that society. Accordingly, this paper analyzes the Brazilian development experience during the latter half of the twentieth century. There has been a struggle for hegemony between two types of DCs in Brazil: the pro-growth state-led DC and the pro-stability free-market DC. From World War II until the 1970s, the former DC was hegemonic, but it has since been replaced by the pro-stability free-market DC. The conservative conduct of monetary policy in Brazil since the 1990s has been built on the hegemony of the stability convention. This perspective has created space for a research program based on political economy and devoted to the study of Brazilian contemporary monetary policy, which helps explain why Brazil has consistently maintained the world’s highest interest rates for so long.

Asymmetric Exchange Rate Pass-Through: Evidence, Inflation Dynamics and Policy Implications for Brazil (1999–2016)

We investigate the existence of an asymmetry in the exchange rate pass-through to the Brazilian consumer price index (CPI). Using a decomposition of the exchange rate series, into appreciations and depreciations of the Brazilian currency during the 1999–2016 period, we estimate Structural Vector Auto-regression (SVAR) models with different identifying restrictions. The results are robust and indicate a relevant asymmetric behavior of the exchange rate pass-through. Estimates indicate a pass-through of 16% in case of depreciation and of 5.8% in case of appreciation of Brazilian Real (BRL) against the US Dollar. Accordingly, the inflationary effect resulted from a (systematic) depreciation is only partially compensated by a deflationary effect of an (systematic) appreciation of the same magnitude, generating an inflationary bias that may cast doubts on inflation control strategies based solely on inflation targeting. Results provide a case against excess exchange volatility and capital mobility. A stable exchange rate favors price stability.

The transmission mechanism of monetary policy: Microeconomic aspects of macroeconomic issues

ABSTRACT The article analyzes the transmission mechanism of monetary policy in light of microeconomic theory. We address the influence of microeconomic factors on the transmission of monetary policy while taking into account the contributions of conventional price formation and competition theory and heterodox microeconomic theories, including work inspired by the post Keynesians. We found a multiplicity of results regarding changes in price levels and inflation derived from shifts in demand and costs. These results challenge the conventional view, which postulates a single behavior in the circuit from changes in interest rates to demand, prices, and inflation. We conclude that microeconomic and macroeconomic aspects should be integrated to properly explain monetary policy and analyze its effects and transmission mechanism.

The Brazilian Economy after the Global Crisis: An Assessment of the Economic Slowdown in 2011–2012

The Brazilian economy grew only 1.8 percent per annum on average in 2011–2012, in contrast with growth of 3.6 percent per annum in 2001–2010. In spite of the change in the economic policy mix (notably a sharp reduction in the interest rate and currency devaluation) and a fiscal stimulus to manufacturing firms (including a reduction of the tax on some manufactured products and exemption of the payroll in various manufacturing sectors, etc.), economic growth dropped in 2012 (0.9 percent). Such a performance has given rise to some criticism from orthodox economists related to the efficacy of activist economic policy that seeks to to boost sustained growth in Brazil.