A Note on the Nonlinearities of Brazilian Monetary Policy

This note analyzes the occurrence of asymmetry in Brazilian monetary policy considering distinct inflation levels. For this purpose, we use data with monthly frequency between 2003 and 2021 and a nonlinear Taylor rule. The results indicate that under the low inflation scenario, the impact of the deviation of inflation expectations to the target is statistically insignificant, revealing a preference by the monetary authority for price stability. Besides, there is a smoothing process in the conduction of Brazilian monetary policy, and the economic activity and the exchange rate are not statistically significant in the central bank reaction function during the period studied.