Do CEPR
Center for economic and policy research
The Brazilian economy grew by 4.2 percent annually from 2004-2010, more than double its annual
growth from 1999-2003 or indeed its growth rate over the prior quarter century. This growth was accompanied by a significant reduction in poverty and extreme poverty, especially after 2005, as well as reduced inequality. This paper looks at the combination of external changes and changes in macroeconomic policy that contributed to these results.
The overall policy framework since 1999 has consisted of a "tripod" of explicit inflation targets, a (very "dirty") floating exchange rate regime, and specific (and quite large) targets for the primary budget surplus.
The Brazilian inflation-targeting system requires that the monetary authority pursue a single objective, the control of inflation, which must remain inside a pre-defined range within a calendar year. Although the inflation target was not achieved in the years 2001 to 2003, since 2004 the government was successful in keeping inflation within the target range every single year, even in the turbulent year of 2008.
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