The Central Bank Independence: Definitions and Analysis of the Brazilian Cas

Abstract

This paper reviews the main arguments concerning credibility theory applied to monetary policy. This is done by reviewing the issue of time inconsistency of monetary plans and the ways to deal with it. Then, the paper presents an analysis of the monetary authority in Brazil, arguing that the economic independence of the Brazilian Central Bank is weak. This and the politically dependent National Monetary Council undermine the credibility to the monetary policy plans in Brazil. At the end, the paper proposes measures to increase the Central Bank credibility.