Quality of Monetary Policy in Brazil: Adherence and COPOM's Directors Turnover Effect
The objective of this paper is to analyze the social cost of monetary policy in Brazil. The monetary adherence and the Copoms director turnover are used as way to test the quality of the monetary policy. We estimated two reaction functions using structural vector autoregressive techniques. The result of the two reaction functions indicates that the turnover of director in the monetary policy committee leads to the increase in the interest rate in order to keep inflation rate around the desired target level. Thus, the turnover produces a high social cost to the economy through monetary policy. Moreover, the monetary adherence measured by the deviation of monetary aggregates from its optimal level seems to be the ultimate exogenous variable that causes changes in output gap and inflation. Thus, the economy would have less social cost if policymakers pay closer attention to the deviations of monetary aggregates to its optimal level.