Regime of targeting inflation: relationship among agricultural prices, interest rate and exchange rate

Abstract

It was developed an agricultural macro model to analyze the interdependence among interest rate, exchange rate and agricultural prices, considering a regime of target inflation. It was verified that the main mechanism of monetary policy transmission is through the exchange rate and that the improper use of such policy, without considering the trade-off between inflation and economic growth, can damage other economic sectors. Considering the hypothesis of small country, the agricultural prices are determined in the international market, suffering little influence from monetary shocks, except those through the exchange rate.