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An Analysis of the Interaction Between Monetary and Fiscal Policies in Brazil

Author

Listed:
  • Livia Carolina Machado Melo

    (University of Sao Paulo (USP-FEARP))

  • Cleomar Gomes da Silva

    (: Federal University of Uberlandia)

Abstract

This paper examines monetary and fiscal policy rules in Brazil for the period 2003-2014, based on a New Keynesian Macro Model estimated via GMM System. The main results show an aggregate demand focused on the lagged GDP output and on GDP growth expectations. As for inflation, the use of hybrid Phillips curve, as well as the influence of the exchange rate, seems to be the case for Brazil. Regarding the Taylor Rule, the Central Bank?s reaction is gradual, via interest rate smoothing, and the expected inflation and GDP are important for the determination of the rule. Therefore, monetary policy seems to be counter-cyclical. As for the Fiscal Policy Rule, the dynamics of economic activity leads to a decrease in the public sector borrowing requirement (PSBR), as % of GDP, which is an indication of a counter-cyclical fiscal policy and coordination of economic policies. However, this may only indicate that GDP grows faster than PSBR, and not that the latter is decreasing. As a result, it is not possible to assure that the Brazilian fiscal policy is actually coordinated with the country's monetary policy.

Suggested Citation

  • Livia Carolina Machado Melo & Cleomar Gomes da Silva, 2019. "An Analysis of the Interaction Between Monetary and Fiscal Policies in Brazil," PSL Quarterly Review, Economia civile, vol. 72(288), pages 53-71.
    • Handle: RePEc:psl:pslqrr:2019:14
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    More about this item

    Keywords

    Monetary Policy; Fiscal Policy; Generalized Method of Moments;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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