IDEAS home Printed from https://ideas.repec.org/a/eme/econpp/econ-12-2023-0206.html
   My bibliography  Save this article

Monetary and fiscal policies in Brazil and the behavioral approach

Author

Listed:
  • Raphael José Pereira Freitas

Abstract

Purpose - This study aims to elucidate the dynamics of monetary and fiscal policy interactions in Brazil, focusing on the impacts of positive shocks in government consumption and interest rates. By comparing rational and behavioral agent responses, it clarifies how these frameworks influence gross domestic product (GDP), inflation, private and government consumption and nominal interest rates. Design/methodology/approach - The study employs a new Keynesian dynamic stochastic general equilibrium (DSGE) model with Bayesian estimation from 2000Q1 to 2022Q4, capturing rational and behavioral behaviors with adjustments for Brazilian economic idiosyncrasies. Impulse response functions (IRF) assess the dynamic effects of policy shocks, providing a comparative analysis of the two frameworks. Findings - Behavioral agents show greater initial sensitivity to policy shocks, causing more pronounced fluctuations in GDP, inflation and private consumption compared to rational agents. Over time, the behavioral approach leads to a more robust recovery, while the rational approach results in a quicker return to equilibrium but less pronounced long-term recovery. The study also finds fiscal policy can partially offset the negative impacts of monetary tightening, with a more delayed effect in the behavioral model. Originality/value - This paper provides insights into the interplay between monetary and fiscal policies under different agent expectations, emphasizing the importance of incorporating behavioral elements into macroeconomic models to better capture policy dynamics in emerging markets.

Suggested Citation

  • Raphael José Pereira Freitas, 2024. "Monetary and fiscal policies in Brazil and the behavioral approach," EconomiA, Emerald Group Publishing Limited, vol. 26(1), pages 108-126, September.
  • Handle: RePEc:eme:econpp:econ-12-2023-0206
    DOI: 10.1108/ECON-12-2023-0206
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/ECON-12-2023-0206/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: no

    File URL: https://www.emerald.com/insight/content/doi/10.1108/ECON-12-2023-0206/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: no

    File URL: https://libkey.io/10.1108/ECON-12-2023-0206?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Bayesian estimates; Bounded rationality; Macroeconomic indicators; New Keynesian DSGE model; C11; D84; E52; E62;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:econpp:econ-12-2023-0206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.