Price stability in Open-Economy under Inflation Targeting Regime with Factors Influencing Inflation Volatility: The Case of Brazil

Abstract

This paper analyzes the relevance of the inflation targeting (IT) policy in achieving its primary goal of medium term price stability in a open economy allowing the investigation of Brazil’s experience with inflation targeting. It finds that this monetary policy regime has been associated with a general reduction in inflation, principally through a reduction in inflation expectations.  The question addressed in this papr is to identify factors that may influence volatility of inflation and why Brasil are more successful than others adopting the policy of inflation targeting.