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Articles

Implications of Public Debt Indexation for Monetary Policy Transmission

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Pages 257-268 | Received 01 Jan 2009, Accepted 01 Jan 2011, Published online: 22 Jan 2019
 

Abstract

The goal of this paper is to provide a better understanding of monetary policy effectiveness in the case of indexed bonds. When public debt management deals with bonds indexed to the interest rate set by the monetary policy, there is no wealth effect and, as a consequence, monetary policy has a weak transmission channel reducing its effectiveness. This can help to explain why monetary policy in Brazil has been so tight and interest rates so high during the Real Plan.

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