Goals, inflationary models and consumer - The Brazilian case
The Central Bank, in order to achieve the inflation target, use the instruments of monetary policy at your disposal. The main one is the aggregate demand control via interest rates. Whenever there are inflationary pressures, interest rate of the economy increases. Consumption is reduced in favor of savings. This attitude of the agents, according to the theory, would be able to reduce the upward trend in inflation and enable the achievement of goals.
In this chapter we will discuss the effects of a policy of inflation targeting on consumption. First we will see what the theory says about the interaction between the interest rate and consumption. Then proceed to a behavior analysis of consumption indicators in the Brazilian economy, in relation to interest. With this we hope to know if the theory is compatible with the Brazilian reality. If the answer is yes, we find that the demand controls are effective tools to ensure that inflation targets are met.
[...] Initially this guy gave more who took loans, rising interest rates makes it richer and, of course, can afford to consume more and reduce the savings. If the individual took over granting, rising interest rates makes it poorer, because the cost of borrowing will be higher. This individual will have to reduce consumption, which would lead to an increase in savings. Finally we can summarize the overall effects of a rise in interest rates on consumption and savings. The substitution effect always tends to increase savings, because it becomes more expensive to consume in the present for the future. [...]
[...] Thus interest rates are used in a model of inflation targeting as a way to ensure that actual inflation is consistent with the target set via demand control. REFERENCES AMARAL, R.Q. the. The regime of inflation targeting: empirical evidence and the case of Brazil Available at: http://www.desempregozero.org.br/artigos/o_regime_de_metas_de_inflação.pdf Bogdanski, Tombini, A.The WERLANG, S.R.C. Implementing Inflation Targeting in Brazil. Central Bank of Brazil p. (Working paper). Fischer, Stanley, Central-Bank Independence Revisited, How Independent shouldnt the central bank be NBER, V.85 No May 1995. Mendonca, HF, Inflation Targeting: a preliminary analysis for the Brazilian case. [...]
[...] To explain how is this interaction, we will adopt a two-period scheme. In this scheme the revenue generated by the individual should be divided into consumption and savings - in both periods. It is then up to the individual to choose when they will consume and save in each period. The charts below show the scheme. The line of negative slope is the budget constraint. His inclination depends on the interest rate. Point E is the individual availability in both periods. [...]
[...] Goals inflationary models and interaction with the consumer - The Brazilian case The Central Bank, in order to achieve the inflation target, use the instruments of monetary policy at your disposal. The main one is the aggregate demand control via interest rates. Whenever feel there inflationary pressures, increases the interest rate of the economy. With it expects consumption to be reduced in favor of savings. This attitude of the agents, according to the theory, would be able to reduce the upward trend in inflation and enable the achievement of goals. [...]
[...] Applied Economics. V No p.129- Rigolon, GIAMBIAGI, F. Central Bank Interventions in a stabilized economy: it is desirable to adopt inflation targeting in Brazil BNDES Essays, Essay April 1998. SICSÚ, J., control inflation Non-Monetary Policy: A Post Keynesian proposal. Rio de Janeiro, RJ: [s.n.], [ca.200]. 25p. SICSÚ, J., Theory and Evidence of the inflation targeting regime, Political Economy Journal, V No p.23-33, January-March 2002. SILVA, Marcelo E. A PORTUGAL, Marcelo S. [...]
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