Capital account liberalization and inflation: evidence from Brazil

Abstract

The argument that capital account liberalization attenuates the time inconsistence problem in the conduction of monetary policy and thus, could improve the control of inflation, was tested for Brazil, in the short run, for different exchange rate regimes. The findings denote that a decrease in the capital account liberalization is capable of attenuating inflationary pressure and that the duration of this effect depends on the exchange regime used.

Notes

¹ The Chow's test denotes that structural change hypothesis cannot be rejected.

² IPCA – National Consumer Price Index (extended) – price index used for measurement of official inflation since the adoption of inflation targeting in June 1999 in Brazil.