Wednesday, October 29, 2014

Back to the future regarding Central Banks?

There are several aspects of the recent elections in Brazil that I find surprising.  One is the excessive concern about the opinion of foreign investors and the need to do policies that they find attractive. Here is a good criticism from an Indian newspaper  (even if the comparison between India and Brazil in terms of political options is probably misplaced).  Another is the whole debate about the autonomy of the Central Bank.  I realize that only two decades ago Brazil was suffering from hyperinflation and that the risks of new problems is always present. Also, the minimum wage policy is great in many ways--particularly its role on income distribution--but without productivity growth it can fuel inflation even more. 

And yet the risk of high inflation is still low and the claim that the PT has been to loose in this area totally unproven.  It is just rather surprising that even sensible Brazilian observers are calling for further Central Bank autonomy.  Why is that needed?  How much has the government truly influenced monetary policy?  And after all the recent problems in Europe, shouldn´t we abandon the technocratic dream of an independent and almost apolitical monetary policy?

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