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Escaping the debt constraint on growth: a suggested monetary policy for Brazil

Author

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  • Thomas I. Palley

Abstract

Existing interest rates imply explosive debt dynamics for Brazil. It also faces rising inflation from earlier currency depreciations, which could trigger future depreciation. These conditions impose a policy contradiction. Brazil needs lower interest rates for debt sustainability, but tight monetary policy to avoid exchange rate depreciation and inflation. The paper develops a strategy to escape this contradiction. Policy must bolster investor confidence to lower external interest rates, lower domestic interest rates to reduce debt service burdens, and implement domestic credit creation controls to control inflation. JEL Classification: E40; E44; F30; F40.

Suggested Citation

  • Thomas I. Palley, 2004. "Escaping the debt constraint on growth: a suggested monetary policy for Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 24(1), pages 38-52.
    • Handle: RePEc:ekm:repojs:v:24:y:2004:i:1:p:38-52:id:657
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    File URL: https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/657/2044
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    Citations

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    Cited by:

    1. José L. Oreiro & Luiz-Fernando de Paula, 2007. "Strategy for Economic Growth in Brazil: A Post Keynesian Approach," Chapters, in: Phillip Arestis & Michelle Baddeley & John S.L. McCombie (ed.), Economic Growth, chapter 17, Edward Elgar Publishing.

    More about this item

    Keywords

    Debt trap; interest rates; exchange rates; Brazil;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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