Friday, January 31, 2014

What does Taylor say for the Selic?

Acording to Taylor,
Selic = neutral real rate + inflation target + 1.5*(expected inflation - inflation target)
I've decided to delete the output gap term because we all disagree about it.
Nowadays expected inflation is around 6%.
For the target and neutral rate, I suggest the following cases:
i) Tombini's mind: neutral rate = 4%, target = 4.5%, which implies Selic = 10.75%
i) My own mind: neutral rate = 5%, target = 5.5%, which implies Selic = 11.25%