This paper analyzes the relation between monetary policy and economic performance in Brazil during the period 1999-2006. In particular, it discusses the growth effects of the inflation targeting regime through its effects on aggregate demand. It is argued that monetary policy under IT reacts in a procyclical and asymmetric way to fluctuations in economic activity (too "tight" during recessions, not so "loose" during expansions). Such pattern may generate a downward bias in aggregate demand, with negative real effects on output growth and employment. Our results suggest that monetary policy has been procyclical and asymmetrical in Brazil under inflation targeting. The main economic policy implication of this study is that central banks should consider more seriously the real effects of monetary policy on output and employment.