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Marcos Reis, Andre de Melo Modenesi and Rui Lyrio Modenesi

The Brazilian response to the subprime and euro crises was a progressive easing of the so called macroeconomic tripod, consisting of inflation targeting, a floating exchange rate with capital mobility, and a primary budget surplus, which was focused strictly on controlling inflation solely by counting on the interest rate. Macroeconomic policy became more flexible with the adoption of other economic and social goals, and a relevant set of instruments, especially countercyclical measures to boost demand, such as increasing public investment, tax cuts, subsidy grants and payroll tax exemptions. Inflation control was relaxed; the interest rate was lowered significantly and fiscal and other non-monetary tools were used for price stabilization. This chapter analyzes the impact of both crises in Brazil and examines the contagion channels and the government responses. It concludes that to deal with the crisis the economic policy needed to be changed, indicating that the golden years of the macroeconomic tripod are over.
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André de Melo Modenesi, Rui Lyrio Modenesi, José Luis Oreiro and Norberto Montani Martins

This article aims at analysing the relationship between conventions and monetary policy using both the post-Keynesian and the French-conventions-school approaches, treated as complementary; and stressing the design of monetary policy frameworks (for example, inflation targeting) and the setting of interest rates as phenomena highly governed by conventions. The Brazilian monetary policy after the mid 1990s – marked by the highest real interest rates in the world – will be used as a case study.