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The Monetary and Fiscal History of Brazil, 1960-2016

Author

Listed:
  • Joao Luiz Ayres
  • Marcio Garcia
  • Diogo Guillen
  • Patrick J. Kehoe

Abstract

Brazil has had a long period of high inflation. It peaked around 100 percent per year in 1964, decreased until the first oil shock (1973), but accelerated again afterward, reaching levels above 100 percent on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of fiscal deficits, passive monetary policy, and constraints on debt financing. The transition to the low-inflation period (1995-2016) was characterized by improvements in all of these features, but it did not lead to significant improvements in economic growth. In addition, we document a strong positive correlation between inflation rates and seigniorage revenues, although inflation rates are relatively high for modest levels of seigniorage revenues. Finally, we discuss the role of the weak institutional framework surrounding the fiscal and monetary authorities and the role of monetary passiveness and inflation indexation in accounting for the unique features of inflation dynamics in Brazil.

Suggested Citation

  • Joao Luiz Ayres & Marcio Garcia & Diogo Guillen & Patrick J. Kehoe, 2018. "The Monetary and Fiscal History of Brazil, 1960-2016," Staff Report 575, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:575
    DOI: 10.21034/sr.575
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    File URL: https://www.minneapolisfed.org/research/sr/sr575.pdf
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    References listed on IDEAS

    as
    1. Garcia, Marcio G. P., 1996. "Avoiding some costs of inflation and crawling toward hyperinflation: The case of the Brazilian domestic currency substitute," Journal of Development Economics, Elsevier, vol. 51(1), pages 139-159, October.
    2. Pastore, Affonso Celso, 1994. "Déficit Público, a Sustentabilidade do Crescimento das Dívidas Interna e Externa, Senhoriagem e Inflação: Uma Análise do Regime Monetário Brasileiro," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 14(2), November.
    3. Chari, V.V. & Kehoe, Patrick J., 2007. "On the need for fiscal constraints in a monetary union," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2399-2408, November.
    4. Cati, Regina Celia & Garcia, Marcio G P & Perron, Pierre, 1999. "Unit Roots in the Presence of Abrupt Governmental Interventions with an Application to Brazilian Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 27-56, Jan.-Feb..
    5. Pastore, Affonso Celso, 1996. "Por que a política monetária perde eficácia?," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 50(3), July.
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    More about this item

    Keywords

    Stabilization plans; Debt accounting; Brazils hyperinflation; Fiscal deficit; Brazils stagnation;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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