In June 1999, the Brazilian Central Bank (BCB) formally adopted the Inflation Target Regime (ITR) in monetary policy conduction, although it informally started some months before. The price index used in the Brazilian ITR is the Broad National Consumer Price Index (also known as IPCA, which is the initials of Portuguese index name). In this regime, there is a target for IPCA and a bottom and a top around this target. The figure below shows the evolution of IPCA as well as the inflation target variables.
The most important instrument of monetary policy is the interest rate. By selling and buying bonds in the open market the Central Bank controls the short-term interest rate to match a level pre-defined by the monetary policy committee. In Brazil, this pre-difined level for interest rate is known as target-Selic. The figure below displays the target-Selic.
The monetary policy has to follow a path to achieve its results. Before impact inflation or output, the changes in short-term interest rate affect the entire term structure of interest rate, also known as the yield curve. The Brazilian yield curve for the last decades is presented below.
Finally, I present the evolution of the output for brazilian economy.