IS THE BRAZILLIAN CENTRAL BANK’S “PRICE STABILITY POLICY FAIR”? An application of John Rawls’ theory

Abstract

This paper seeks to apply John Rawls' philosophy to a contemporary issue which he did not directly address: price stability policy. Based on the Brazilian context, it examines the adoption of short-term interest rates, by the Central Bank of Brazil (BCB), as an instrument to stabilize prices. It is argued that such an intervention generates an unequal redistribution of resources, which is a reason to judge it in the light of one of the Rawlsian criteria of justice, according to which an institution is fair if its inequalities are justified by virtue of the benefits they bring to the less favored groups. By means of an “Auto-regressive Vectors model”, it explores the assumption that this policy is, in fact, associated with the collective benefit it foresees (namely, price stability). Finally, the theoretical and empirical discussion corroborates the relevance of Rawls' theory on this issue and concludes that the BCB's policy is not fair.