The author begins by asking why Brazilian policymakers opted to target the exchange rate to stabilize inflation when this strategy had already failed in Mexico. The answer: It was no longer possible to accomodate the country's high inflation rate through the pervasive use of price indexation and...

La tasa de inflacion en el Brasil llego a 40% mensuales durante el ultimo trimestre de 1989. De nuevo, los gobernantes examinaron la posibilidad de imponer controles de precios, a pesar del fracaso de los tres intentos anteriores por abatir la inflacion mediante indizaciones en 1986, 1987 y...

The paper develops a model of seigniorage in an open economy, linking inflation, the government budget and the external balance. It introduces financial markets and interest rates in the traditional Cagan style model of inflationary dynamics and it evaluates the experiences of Brazil and Mexico....