Fiscal effect from inflation targeting: the Brazilian experience

This article evaluates the presence of possible unpleasant effects on the fiscal side due to a disinflation process initiated with the adoption of inflation targeting in Brazil. The analysis for this country deserves attention because, credibility is still being built and Brazil represents a potential laboratory experiment in which the effects of an adoption of inflation targeting, after more than half a decade, can be studied. Under this perspective, an empirical analysis based on OLS, GMM and VAR methods is made. The findings denote that the development of credibility is a powerful instrument for eliminating the unpleasant effects from a tight monetary policy (necessity of increasing primary surplus) on public debt.