NBER WORKING PAPER SERIES
THE MONETARY AND FISCAL HISTORY OF BRAZIL, 1960-2016
Joao Ayres Marcio Garcia Diogo A. Guillén Patrick J. Kehoe
Working Paper 25421 http://www.nber.org/papers/w25421
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue
Cambridge, MA 02138
January 2019
This is a chapter in forthcoming book The Monetary and Fiscal History of Latin America.
We would like to thank Marcelo Abreu, Pérsio Arida, Edmar Bacha, Marco Bassetto, Tiago Berriel, Afonso Bevilaqua, Amaury Bier, Claudio Considera, Gustavo Franco, Fabio Giambiagi, Claudio Jaloretto, Joaquim Levy, Eduardo Loyo, Timothy Kehoe, Ana Maria Jul, Randy Kroszner, Pedro Malan, Rodolfo Manuelli, Andy Neumeyer, Juan Pablo Nicolini, Affonso Pastore, Murilo Portugal, Thomas Sargent, Teresa Ter-Minassian, José Scheinkman, Rogério Werneck, and participants at the “Monetary and Fiscal History of Latin America” workshops held in the University of Chicago, LACEA-LAMES in Buenos Aires, PUC-Rio, Central Bank of Chile, and Inter-American Development Bank. This project was coordinated by Marcio Garcia. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, Inter-American Development Bank, or the National Bureau of Economic Research.
At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w25421.ack
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
© 2019 by Joao Ayres, Marcio Garcia, Diogo A. Guillén, and Patrick J. Kehoe. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
THE MONETARY AND FISCAL HISTORY OF BRAZIL, 1960-2016
Joao Ayres Marcio Garcia Diogo A. Guillén Patrick J. Kehoe
Working Paper 25421 http://www.nber.org/papers/w25421
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue
Cambridge, MA 02138
January 2019
This is a chapter in forthcoming book The Monetary and Fiscal History of Latin America.
We would like to thank Marcelo Abreu, Pérsio Arida, Edmar Bacha, Marco Bassetto, Tiago Berriel, Afonso Bevilaqua, Amaury Bier, Claudio Considera, Gustavo Franco, Fabio Giambiagi, Claudio Jaloretto, Joaquim Levy, Eduardo Loyo, Timothy Kehoe, Ana Maria Jul, Randy Kroszner, Pedro Malan, Rodolfo Manuelli, Andy Neumeyer, Juan Pablo Nicolini, Affonso Pastore, Murilo Portugal, Thomas Sargent, Teresa Ter-Minassian, José Scheinkman, Rogério Werneck, and participants at the “Monetary and Fiscal History of Latin America” workshops held in the University of Chicago, LACEA-LAMES in Buenos Aires, PUC-Rio, Central Bank of Chile, and Inter-American Development Bank. This project was coordinated by Marcio Garcia. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, Inter-American Development Bank, or the National Bureau of Economic Research.
At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w25421.ack
NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
© 2019 by Joao Ayres, Marcio Garcia, Diogo A. Guillén, and Patrick J. Kehoe. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
The Monetary and Fiscal History of Brazil, 1960-2016
Joao Ayres, Marcio Garcia, Diogo A. Guillén, and Patrick J. Kehoe NBER Working Paper No. 25421
January 2019
JEL No. E0,E02,E3,E4,E42,E5,E58,E6
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.
Joao Ayres, Marcio Garcia, Diogo A. Guillén, and Patrick J. Kehoe NBER Working Paper No. 25421
January 2019
JEL No. E0,E02,E3,E4,E42,E5,E58,E6
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.
Joao Ayres
Inter-American Development Bank jluizayres@gmail.com
Marcio Garcia
Pontifical Catholic University of Rio De Janiero marciogomespintogarcia@gmail.com
Inter-American Development Bank jluizayres@gmail.com
Marcio Garcia
Pontifical Catholic University of Rio De Janiero marciogomespintogarcia@gmail.com
Diogo A. Guillén
Itau-Unibanco Asset Management dguillen@gmail.com
Patrick J. Kehoe
Department of Economics Stanford University
579 Serra Mall
Stanford, CA 94305
and NBER patrickjameskehoe@gmail.com
Itau-Unibanco Asset Management dguillen@gmail.com
Patrick J. Kehoe
Department of Economics Stanford University
579 Serra Mall
Stanford, CA 94305
and NBER patrickjameskehoe@gmail.com
