## 4.   Brazil 2001 - 2003

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### I. Introduction — purpose and main theoretical insight
- Analyzes a small open economy model under monetary regimes that target inflation, distinguishing CPI inflation targets and domestic nontradables inflation targets.
- Main theoretical insight: inflation targeting implies an implicit commitment to intervene in the foreign exchange market to defend the target; that commitment makes speculative attacks possible and these attacks tend to be flow attacks (occurring over a short period) rather than instantaneous as under exchange rate targeting.
- Relative commitment to intervene (strongest → weakest): exchange rate targeting, CPI inflation targeting, domestic inflation targeting, money targeting.
- Uses the first-generation balance of payments crisis framework (Calvo-style) with tradable and nontradable goods to specify CPI and to allow quantitative analysis of failed inflation stabilizations.

### II. Model structure — actors, preferences, markets, and policy regimes
- Agents and markets:
  - Representative households, tradables and nontradables manufacturing firms, government/central bank.
  - Tradable goods: purchasing power parity holds; international price normalized to one. Nontradable goods: flexible prices.
- Households:
  - Utility: consumption of tradables c*_t, nontradables c_t and leisure (1−L_t); consumption aggregator with constant elasticity σ between c*_t and c_t.
  - Personal discount rate equals constant real international interest rate r.
  - Financial assets: nominal money balances M_t, real international bonds ṽb_t (foreign currency) earning r, domestic currency government bonds Q_t earning i_t. Uncovered interest parity: i_t = r + ε_t.
  - Cash-in-advance constraint: m_t ≥ α(c*_t + c_t/e_t); assumed binding when nominal interest rate strictly positive.
- Firms:
  - Tradables and nontradables production functions with labor inputs; constant returns to scale → zero profits.
- Government and monetary regimes:
  - Government chooses lump-sum transfers {g_t} and monetary policy rule.
  - Considered regimes: exchange rate targeting (E_t path), CPI inflation targeting, domestic nontradables inflation targeting, and money targeting.
  - Initial target growth rates denoted ̄ε, ̄p, and ̄π; targets assumed sustainable under previous transfers but become unsustainably low after an increase in transfers announced at time 0.
  - Under CPI and domestic inflation targeting, rules are set so that in equilibrium price levels satisfy exact price level targeting: P_t = P_0 + e^{̄p t} and P^N_t = P^N_0 + e^{̄π t} respectively (limiting case of feedback rules with infinite weight on price-path deviations).

### III. Unsustainable policy experiment setup
- Initial steady state (subscript I):
  - f_I = 0, h_I (initial reserves) and balanced budget g_I = r h_I, p_I = ε_I = π_I = 0.
- Policy shock at t = 0:
  - Government transfers permanently increased from g_I to ̄g with ̄g > r h_I.
  - Target growth rate of nominal anchor kept at 0 under all three monetary regimes.
  - Result: gradual depletion of foreign exchange reserves; constraint h_t ≥ 0 becomes binding at endogenous time T, regime collapses; final steady state must satisfy balanced budget via seigniorage: ̄g = ε_T m_T where ε_T > 0.
- Two accommodation cases at t = 0:
  - Full monetary accommodation: central bank accommodates increase in real money demand via exchange for foreign exchange → initial reserve increase identical across regimes.
  - Smooth target price paths: central bank ensures smooth paths of targeted price variable (P_t or P^N_t), which implies discrete nominal exchange rate jumps on impact and smaller initial reserve gains for inflation targets relative to exchange rate targeting.

### IV. Calibration for Brazil (2000–2003 window) — key parameter values
- Time unit: quarter.
- Real international interest rate r: annual real rate of 10% (based on Brazilian Brady bond yields between 10% and 15% adjusted for US inflation).
- Inverse velocity α = 0.33 (ratio of real monetary base to quarterly absorption).
- Tradables consumption share ω = 0.5.
- Elasticity of substitution σ = 0.5 (based on Mendoza (2005)).
- Normalizations in initial steady state: f_I = 0, y^*_I = c^*_I = 1, y_I = c_I = 1.
- Initial relative price of tradables e = 1 → initial tradables share in consumption = 0.5.
- Time endowment and labor: ̄L = 1/3.
- Production parameters: ρ^* = ρ = 0.4.
- Implied preference share parameter γ = 0.62.
- Initial CPI price level P normalized to 1.
- Central bank foreign exchange reserves h_I set at 0.987 * m_I (based on h/m ratio in Brazil in 2000, prior to attacks).
- Initial government spending g_I = 0.016 (equals interest earnings on these reserves to balance budget).
- Permanently higher government transfer chosen for experiment: ̄g = 0.2 (large value chosen to generate a fast speculative attack; qualitative comparative dynamics are robust to this choice).

### V. Solution method — numerical approach
- CPI and domestic inflation targeting: nested shooting algorithm iterating on lifetime wealth multiplier λ and initial exchange rate jump ε_0 to satisfy overall resource constraint and government lifetime budget constraint combined with reserve lower bound h_t ≥ 0.
- Exchange rate targeting: simpler computation as step paths for all variables; details in Technical Appendix.

### VI. Dynamics of speculative attacks — model results and mechanism
- Common dynamics across regimes:
  - At t = 0 announcement of unsustainable higher transfers → initial period of tight monetary policy financed by drawing on reserves, leading to an initial consumption boom followed by a collapse when higher inflation materializes.
  - Real money balances initially rise then collapse (cash-in-advance constraint binding).
  - Under exchange rate targeting the final collapse in reserves is instantaneous; under the two inflation targeting regimes it is continuous but concentrated in a short accelerating period before collapse.
- Key mechanism determining reserve depletion:
  - Real money balances evolve as ̇m_t = μ_t m_t − ε_t m_t. Collapse in m_t can occur via nominal money contraction (μ_t m_t < 0) or exchange rate depreciation (ε_t m_t > 0). These effects are substitutes quantitatively.
  - Greater commitment to defend a price target implies a larger monetary contraction (μ_t negative) and/or smaller allowed exchange rate depreciation ε_t, which accelerates reserve losses; weaker intervention (allowing depreciation earlier) collects a higher inflation tax ε_t m_t and reduces reserve depletion prior to collapse.
- Regime comparisons (qualitative):
  - Exchange rate targeting: strongest commitment to defend exchange rate → reserve losses are largest and occur instantaneously at T; no inflation tax collected before T (ε_t m_t = 0 prior to collapse).
  - CPI inflation targeting: stronger commitment to defend CPI than to defend domestic nontradables price → requires larger monetary contraction for a given exchange rate depreciation → larger reserve losses than domestic inflation targeting.
  - Domestic nontradables inflation targeting: weaker commitment than CPI targeting because exchange rate depreciation does not directly affect targeted nontradables inflation, hence smaller reserve losses than CPI targeting.
  - Money targeting: weakest commitment to defend a price path; allows exchange rate depreciation earliest and most, collecting inflation tax and preserving reserves the longest; reserves exhausted only because of government overspending.
- Special cases where inflation targeting ≡ money targeting:
  - Domestic inflation targeting, endowment economy, and Cobb-Douglas preferences.

### VII. Quantitative comparative findings (selected)
- In the full accommodation baseline (ω = 0.5, α = 0.33, σ = 0.5, r = 10% annual, h_I = 0.987 * m_I, g_I = 0.016, ̄g = 0.2):
  - Inflation targeting speculative attacks are large — at least 45% of reserve losses under exchange rate targeting in calibrated experiments.
  - CPI inflation targeting yields significantly larger reserve losses and earlier collapses than domestic inflation targeting.
  - Reserve loss under CPI inflation targeting (and to a lesser extent domestic inflation targeting) increases with tradables share ω because higher ω amplifies inflationary consequences of exchange rate depreciation and forces larger offsetting monetary contraction.
- Robustness:
  - Results are robust to variations: endowment economy, σ = 0.5 and σ = 2, and other parameter changes — qualitative ordering of regime vulnerability unchanged.
- Effect of central bank behavior at announcement (full accommodation vs smooth target paths):
  - Full accommodation: central bank converts increased real money demand into foreign exchange reserves on impact; initial reserve gains identical across regimes.
  - Smooth target path accommodation: initial reserve gains are smaller for CPI targeting and smaller yet for domestic targeting relative to exchange rate targeting (money targeting has zero initial reserve gain). Smaller initial reserve gains offset smaller subsequent reserve losses under inflation targeting; with smooth target paths the timing of collapse can coincide across regimes.
- Welfare comparison with Mendoza and Uribe (MU):
  - MU reported a 5.56% Lucas compensating variation for their Mexican stabilization experiment (largely due to lower government spending and effects on capital accumulation).
  - In the present model (no endogenous G reductions or capital accumulation distortions), welfare gain for exchange rate targeting is small: 0.01%; inflation targeting yields almost identical small welfare gains in this specification.

### VIII. Empirical illustrations — Chile 1997–1999 and Brazil 2001–2003
- Chile 1998:
  - During the Asian and Russian crises, exchange rate depreciation exceeded inflation target; central bank conducted heavy unsterilized foreign exchange intervention with sizeable reserve losses to defend annual CPI inflation target.
  - Evolution of inflation, reserves, interest rates and output qualitatively consistent with model predictions; the defense of the inflation target was ultimately successful.
- Brazil 2001 and 2002 episodes (post-adoption of inflation targeting in 1999):
  - 2001: speculative pressure driven by current account imbalances, electricity shortages (June 2001), and anticipation of Argentine default/devaluation; large exchange rate depreciation and an incipient deviation from inflation target; central bank intervened heavily with large reserve losses.
  - 2002: more severe episode associated with fiscal concerns and political uncertainty (anticipated election outcome); large exchange rate depreciation and pass-through to domestic prices led to missing the inflation target; response included heavy intervention with reserve losses and a temporary increase of the annual inflation target from 3.5% to 8.5%.
  - The 2002 episode mirrors the fiscally driven speculative attack scenario analyzed in the model.

### IX. Policy implications and conclusions
- Inflation targeting regimes can be vulnerable to speculative attacks; this contradicts the view that inflation targeting, through flexible exchange rates, automatically insulates an economy from runs on reserves.
- The degree of vulnerability lies between the extremes of exchange rate targeting (most vulnerable) and money targeting (least vulnerable) and depends on the implicit/explicit commitment to foreign exchange intervention.
- CPI inflation targeting is more vulnerable than domestic nontradables inflation targeting; vulnerability increases with the tradables share in the consumption basket.
- For emerging markets, where fiscal instability is a realistic concern, inflation targeting regimes may face significant short-run reserve pressures; fiscal fundamentals and credibility of fiscal-monetary coordination remain crucial complements to monetary regime choice.
- The paper fills a gap by quantitatively analyzing failed inflation stabilizations in a dynamic general equilibrium setup and highlights the role of monetary policy–driven time-varying distortions (a tax-like effect of deviations of nominal interest rates from the Friedman rule) in generating abrupt contractions in consumption and money demand that trigger reserve losses.

*Source: IMF Working Paper chapter “4.   Brazil 2001 - 2003” (extracted content unit).*

### References..........................................  25

### _wp0784 - References..........................................  25

### Tables
- 1.   Reserve Loss Ratios - Central Bank Accommodates Money Demand at t=0 . .   19
- 2.   Reserve Loss Ratios - Central Bank Ensures Smooth Target Paths at t=0 . . .   20

### Figures
- 1.  (a)Overview(FullAccommodation)........................  13
- 1.  (b)LaborMarket(FullAccommodation) .....................  14
- 1.   (c) Price Levels and InflationRates(FullAccommodation) ...........  15
- 1.  (d)GovernmentBudget(FullAccommodation)..................  16
- 2.  Overview(SmoothTargetPaths)..........................  21
- 3.   Chile 1997 - 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   24

*Source: _wp0784 - References..........................................  25*

### 4.   Brazil 2001 - 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   24

### 4.   Brazil 2001 - 2003

### I. Introduction — purpose and main theoretical insight
- Analyzes a small open economy model under monetary regimes that target inflation, distinguishing CPI inflation targets and domestic nontradables inflation targets.
- Main theoretical insight: inflation targeting implies an implicit commitment to intervene in the foreign exchange market to defend the target; that commitment makes speculative attacks possible and these attacks tend to be flow attacks (occurring over a short period) rather than instantaneous as under exchange rate targeting.
- Relative commitment to intervene (strongest → weakest): exchange rate targeting, CPI inflation targeting, domestic inflation targeting, money targeting.
- First-generation balance of payments crisis framework (Calvo-style) is used; model includes tradable and nontradable goods to specify CPI and allows quantitative analysis of failed inflation stabilizations.

### II. Model structure — actors, preferences, markets, and policy regimes
- Agents and markets:
  - Representative households, tradables and nontradables manufacturing firms, government/central bank.
  - Tradable goods: purchasing power parity holds; international price normalized to one. Nontradable goods: flexible prices.
- Households:
  - Utility: consumption of tradables c*_t, nontradables c_t and leisure (1−L_t); consumption aggregator with constant elasticity σ between c*_t and c_t.
  - Personal discount rate equals constant real international interest rate r.
  - Financial assets: nominal money balances M_t, real international bonds ṽb_t (foreign currency) earning r, domestic currency government bonds Q_t earning i_t. Uncovered interest parity: i_t = r + ε_t.
  - Cash-in-advance constraint: m_t ≥ α(c*_t + c_t/e_t); assumed binding when nominal interest rate strictly positive.
- Firms:
  - Tradables and nontradables production functions with labor inputs; constant returns to scale → zero profits.
- Government and monetary regimes:
  - Government chooses lump-sum transfers {g_t} and monetary policy rule.
  - Considered regimes: exchange rate targeting (E_t path), CPI inflation targeting, domestic nontradables inflation targeting, and money targeting.
  - Initial target growth rates denoted ̄ε, ̄p, and ̄π; targets assumed sustainable under previous transfers but become unsustainably low after an increase in transfers announced at time 0.
  - Under CPI and domestic inflation targeting, rules are set so that in equilibrium price levels satisfy exact price level targeting: P_t = P_0 + e^{̄p t} and P^N_t = P^N_0 + e^{̄π t} respectively (limiting case of feedback rules with infinite weight on price-path deviations).

### III. Unsustainable policy experiment setup
- Initial steady state (subscript I):
  - f_I = 0, h_I (initial reserves) and balanced budget g_I = r h_I, p_I = ε_I = π_I = 0.
- Policy shock at t = 0:
  - Government transfers permanently increased from g_I to ̄g with ̄g > r h_I.
  - Target growth rate of nominal anchor kept at 0 under all three monetary regimes.
  - Result: gradual depletion of foreign exchange reserves; constraint h_t ≥ 0 becomes binding at endogenous time T, regime collapses; final steady state must satisfy balanced budget via seigniorage: ̄g = ε_T m_T where ε_T > 0.
- Distinction: two accommodation cases considered at t = 0:
  - Full monetary accommodation: central bank accommodates increase in real money demand via exchange for foreign exchange → initial reserve increase identical across regimes.
  - Smooth target price paths: central bank ensures smooth paths of targeted price variable (P_t or P^N_t), which implies discrete nominal exchange rate jumps on impact and smaller initial reserve gains for inflation targets relative to exchange rate targeting.

### IV. Calibration for Brazil (2000–2003 window) — key parameter values
- Time unit: quarter.
- Real international interest rate r: annual real rate of 10% (based on Brazilian Brady bond yields between 10% and 15% adjusted for US inflation).
- Inverse velocity α = 0.33 (ratio of real monetary base to quarterly absorption).
- Tradables consumption share ω = 0.5.
- Elasticity of substitution σ = 0.5 (based on Mendoza (2005)).
- Normalizations in initial steady state: f_I = 0, y^*_I = c^*_I = 1, y_I = c_I = 1.
- Initial relative price of tradables e = 1 → initial tradables share in consumption = 0.5.
- Time endowment and labor: ̄L = 1/3.
- Production parameters: ρ^* = ρ = 0.4.
- Implied preference share parameter γ = 0.62.
- Initial CPI price level P normalized to 1.
- Central bank foreign exchange reserves h_I set at 0.987 * m_I (based on h/m ratio in Brazil in 2000, prior to attacks).
- Initial government spending g_I = 0.016 (equals interest earnings on these reserves to balance budget).
- Permanently higher government transfer chosen for experiment: ̄g = 0.2 (large value chosen to generate a fast speculative attack; qualitative comparative dynamics are robust to this choice).

### V. Solution method — numerical approach
- CPI and domestic inflation targeting: nested shooting algorithm iterating on lifetime wealth multiplier λ and initial exchange rate jump ε_0 to satisfy overall resource constraint and government lifetime budget constraint combined with reserve lower bound h_t ≥ 0.
- Exchange rate targeting: simpler computation as step paths for all variables; details in Technical Appendix.

### VI. Dynamics of speculative attacks — model results and mechanism
- Common dynamics across regimes:
  - At t = 0 announcement of unsustainable higher transfers → initial period of tight monetary policy financed by drawing on reserves, leading to an initial consumption boom followed by a collapse when higher inflation materializes.
  - Real money balances initially rise then collapse (cash-in-advance constraint binding).
  - Under exchange rate targeting the final collapse in reserves is instantaneous; under the two inflation targeting regimes it is continuous but concentrated in a short accelerating period before collapse.
- Key mechanism determining reserve depletion:
  - Real money balances evolve as ̇m_t = μ_t m_t − ε_t m_t. Collapse in m_t can occur via nominal money contraction (μ_t m_t < 0) or exchange rate depreciation (ε_t m_t > 0). These effects are substitutes quantitatively.
  - Greater commitment to defend a price target implies a larger monetary contraction (μ_t negative) and/or smaller allowed exchange rate depreciation ε_t, which accelerates reserve losses; weaker intervention (allowing depreciation earlier) collects a higher inflation tax ε_t m_t and reduces reserve depletion prior to collapse.
- Regime comparisons (qualitative):
  - Exchange rate targeting: strongest commitment to defend exchange rate → reserve losses are largest and occur instantaneously at T; no inflation tax collected before T (ε_t m_t = 0 prior to collapse).
  - CPI inflation targeting: stronger commitment to defend CPI than to defend domestic nontradables price → requires larger monetary contraction for a given exchange rate depreciation → larger reserve losses than domestic inflation targeting.
  - Domestic nontradables inflation targeting: weaker commitment than CPI targeting because exchange rate depreciation does not directly affect targeted nontradables inflation, hence smaller reserve losses than CPI targeting.
  - Money targeting: weakest commitment to defend a price path; allows exchange rate depreciation earliest and most, collecting inflation tax and preserving reserves the longest; reserves exhausted only because of government overspending.
- Special cases where inflation targeting ≡ money targeting:
  - Domestic inflation targeting, endowment economy, and Cobb-Douglas preferences.

### VII. Quantitative comparative findings (selected)
- In the full accommodation baseline (ω = 0.5, α = 0.33, σ = 0.5, r = 10% annual, h_I = 0.987 * m_I, g_I = 0.016, ̄g = 0.2):
  - Inflation targeting speculative attacks are large — at least 45% of reserve losses under exchange rate targeting in calibrated experiments.
  - CPI inflation targeting yields significantly larger reserve losses and earlier collapses than domestic inflation targeting.
  - Reserve loss under CPI inflation targeting (and to a lesser extent domestic inflation targeting) increases with tradables share ω because higher ω amplifies inflationary consequences of exchange rate depreciation and forces larger offsetting monetary contraction.
- Robustness:
  - Results are robust to variations: endowment economy, σ = 0.5 and σ = 2, and other parameter changes — qualitative ordering of regime vulnerability unchanged.
- Effect of central bank behavior at announcement (full accommodation vs smooth target paths):
  - Full accommodation: central bank converts increased real money demand into foreign exchange reserves on impact; initial reserve gains identical across regimes.
  - Smooth target path accommodation: initial reserve gains are smaller for CPI targeting and smaller yet for domestic targeting relative to exchange rate targeting (money targeting has zero initial reserve gain). Smaller initial reserve gains offset smaller subsequent reserve losses under inflation targeting; with smooth target paths the timing of collapse can coincide across regimes.
- Welfare comparison with Mendoza and Uribe (MU):
  - MU reported a 5.56% Lucas compensating variation for their Mexican stabilization experiment (largely due to lower government spending and effects on capital accumulation).
  - In the present model (no endogenous G reductions or capital accumulation distortions), welfare gain for exchange rate targeting is small: 0.01%; inflation targeting yields almost identical small welfare gains in this specification.

### VIII. Empirical illustrations — Chile 1997–1999 and Brazil 2001–2003
- Chile 1998:
  - During the Asian and Russian crises, exchange rate depreciation exceeded inflation target; central bank conducted heavy unsterilized foreign exchange intervention with sizeable reserve losses to defend annual CPI inflation target.
  - Evolution of inflation, reserves, interest rates and output qualitatively consistent with model predictions; the defense of the inflation target was ultimately successful.
- Brazil 2001 and 2002 episodes (post-adoption of inflation targeting in 1999):
  - 2001: speculative pressure driven by current account imbalances, electricity shortages (June 2001), and anticipation of Argentine default/devaluation; large exchange rate depreciation and an incipient deviation from inflation target; central bank intervened heavily with large reserve losses.
  - 2002: more severe episode associated with fiscal concerns and political uncertainty (anticipated election outcome); large exchange rate depreciation and pass-through to domestic prices led to missing the inflation target; response included heavy intervention with reserve losses and a temporary increase of the annual inflation target from 3.5% to 8.5%.
  - The 2002 episode mirrors the fiscally driven speculative attack scenario analyzed in the model.

### IX. Policy implications and conclusions
- Inflation targeting regimes can be vulnerable to speculative attacks; this contradicts the view that inflation targeting, through flexible exchange rates, automatically insulates an economy from runs on reserves.
- The degree of vulnerability lies between the extremes of exchange rate targeting (most vulnerable) and money targeting (least vulnerable) and depends on the implicit/explicit commitment to foreign exchange intervention.
- CPI inflation targeting is more vulnerable than domestic nontradables inflation targeting; vulnerability increases with the tradables share in the consumption basket.
- For emerging markets, where fiscal instability is a realistic concern, inflation targeting regimes may face significant short-run reserve pressures; fiscal fundamentals and credibility of fiscal-monetary coordination remain crucial complements to monetary regime choice.
- The paper fills a gap by quantitatively analyzing failed inflation stabilizations in a dynamic general equilibrium setup and highlights the role of monetary policy–driven time-varying distortions (a tax-like effect of deviations of nominal interest rates from the Friedman rule) in generating abrupt contractions in consumption and money demand that trigger reserve losses.

*Source: IMF Working Paper chapter “4.   Brazil 2001 - 2003” (extracted content unit).*

### References

### _wp0784 - References

### References list
- Bernanke, B.S., Laubach, T., Mishkin, F.S., Posen, A.S., 1999, “Inflation Targeting,” Princeton University Press, Princeton.
- Calvo, G.A., 1987, “Balance of payments crises in a cash in advance economy,”Journal of Money, Credit and Banking, Vol. 19, No. 1, pp. 79—104.
- Calvo, G.A., Reinhart, C.M., 2002, “Fear offloating,”Quarterly Journal of Economics, Vol. 117, No. 2, pp. 379—408.
- Calvo, G.A., Vegh, C.A., 1999, “Inflation stabilization and BOP crises in developing countries,” Ch. 24 in: J.B. Taylor and M. Woodford, eds.,Handbook of Macroeconomics,Volume1C.Elsevier,Amsterdam, North Holland.
- Carstens, A.G., Werner, A.M., 1999, “Mexico’s monetary policy framework under a floating exchange rate regime,” Serie Documentos de Investigacion, Banco de Mexico, Documento No. 9905.
- De Gregorio, J., Giovannini, A., Wolf, H.C., 1994, “International evidence on tradables and nontradables inflation,”European Economic Review, Vol. 38, pp. 1225—1244.
- Dixit, A.K., 1989, “Hysteresis, import penetration and exchange rate pass-through,” Quarterly Journal of Economics, Vol. 104, No. 2, pp. 205—228.
- Frankel, J., 1999, “No single currency regime is right for all countries or at all times,” NBER Working PaperNo. 7338.
- Froot, K.A., Klemperer, P.D., 1995, “Exchange rate pass-through when market share matters,”American Economic Review, Vol. 79, No. 4, pp. 637—654.
- Gali, J., Monacelli, T., 2002, “Monetary policy and exchange rate volatility in a small open economy,”NBER Working PaperNo. 8905.
- García-Verdú, R., 2005, “Factor shares from household survey data,” Working Paper, Banco de México.
- Krugman, P., 1989, “Exchange Rate Instability,”MIT Press, Cambridge, Massachusetts.
- Krugman, P., 1996, “Are currency crises self-fulfilling?,” and comments by Timothy Kehoe, Maurice Obstfeld and Peter Garber.NBER Macroeconomics Annual, pp.345-407.
- Leiderman, L., Svensson, L.E.O., 1995, “Inflation Targets,”CEPR, London.
- Lucas, R.E. jr., 1987, “Models of Business Cycles,”Basil Blackwell, Oxford, New York.
- Masson, P.R., Savastano, M.A., Sharma, S., 1997, “The scope for inflation targeting in developing countries,”IMFWorking Paper WP/97/130.
- -26-
- McCallum, B.T., 1996, “Inflation targeting in Canada, New Zealand, Sweden, the United Kingdom, and in general,”NBERWorking Paper No. 5579.
- Mendoza, E., 2005, “Real exchange rate volatility and the price of nontradables in sudden-stop-prone economies,”NBERWorking Paper No. 11691.
- Mendoza, E., Uribe, M., 2000, “Devaluation risk and the business-cycle implications of exchange-rate management,”Carnegie-Rochester Conference Series on Public Policy Vol. 53, pp.239-296.
- Mendoza, E., Uribe, M., 2001, “The business cycles of balance-of-payments crises: A revision of the Mundellian framework,” In: Calvo, G., Dornbusch, R., Obstfeld, M. (Eds.), Money, Capital Mobility and Trade: Essays in Honor of Robert A. Mundell, MIT Press, pp. 431-466.
- Minella, A., Springer de Freitas, P., Goldfajn, I., Kfoury Muinhos, M., 2003, “Inflation targeting in Brazil: Constructing credibility under exchange rate volatility,”Journal of International Money and Finance, Vol. 22, pp. 1015—1040.
- Mishkin, F.S., Savastano, M.A., 2000, “Monetary policy strategies for Latin America,” NBERWorking Paper No. 7617.
- Morande, F., Schmidt-Hebbel, K., 1999, “The scope for inflation targeting in emerging market economies,” Working Paper, Central Bank of Chile.
- Obstfeld, M., 1986, “Speculative attack and the external constraint in a maximizing model of the balance of payments,”Canadian Journal of Economics,Vol.19,No.1, pp. 1—22.
- Reinhart, C.M., 2000, “The mirage offloating exchange rates,”American Economic Review, Vol. 90, No. 2, pp. 65—70.

*Content unit: _wp0784 - References*

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