A 2017 article in the Wall Street Journal discussed the
decision by Brazil’s central bank to cut the SELIC rate,
which is the equivalent in Brazil of the federal funds rate
in the United States. According to the article, the cut
occurred “as the country’s inflation rate continues to fall
quickly and the economy still struggles.”
a. In what sense do you think the Brazilian economy was
“struggling” when this article was published?
b. Why would a cut in the SELIC rate be an appropriate
policy action at a time when the inflation rate was
falling and the economy was struggling?
Source: Jeffrey T. Lewis, “Brazil Cuts Its Benchmark Rate a Full
Percentage Point,” Wall Street Journal, April 12, 2017.