Oil prices and inflation in Brazil

This chapter examines the relationship between oil prices and inflation in Brazil during 1994–2008. The period is particularly rich from a research standpoint because it spanned two very distinct periods of monetary policy strategy: the exchange rate targeting (ERT) carried out in 1994–1998 and the inflation targeting framework (IT) adopted in 1999. Therefore, besides providing an estimate of the overall impact of oil prices on inflation in Brazil, this chapter also investigates whether this impact has changed after the adoption of IT. In addition, interesting byproducts of the empirical work include estimates of the degree of persistence of inflationary shocks and the impact of economic activity, the exchange rate, and the interest rate on inflation under the alternative monetary regimes.