Macroeconomic performance in Brazil after the inflation targeting regime

Abstract This study analyses theoretically and empirically the relationship between monetary institutions and macroeconomic performance in Brazil, in the period after the adoption of the inflation targeting regime (ITR), in 1999. The hypothesis is that the monetary institutions inhibited economic growth, rather than being effective at controlling inflation, whose main causes are related to structural and institutional factors, indexation process and domestic and external shocks. The main results of the ITR, embodied in the highly restrictive monetary policy, are the following negative effects: A reduction in Gross Domestic Product (GDP) growth rates, a rise in the stock of public debt and an appreciation of the domestic currency. Likewise, the ITR has not been successful in maintaining inflation rate below its target. In this respect, revisions in the Brazilian monetary institutions would be essential to improve the results of the ITR, both in terms of actual inflation and economic performance.