Déficit Público, a Sustentabilidade do Crescimento das Dívidas Interna e Externa, Senhoriagem e Inflação: Uma Análise do Regime Monetário Brasileiro

Any attempt to examine the correlation between government deficit and inflation in Brazil must take into consideration Sargent and Wallace's statement to the effect that monetary policy alone cannot prevent the inflationary impact of a persistently expansionist fiscal policy. When primary deficits persist and the real interest rate exceeds the rate of economic growth, the inter-temporal government budget restriction is violated and the more expectation that money supply will grow may drive up current inflation rates. This paper checks these two assumptions through the unit root and cointegration tests. No evidence was found to indicate that budget restriction has been violated or that the rates of inflation fail to cointegrate with money supply expansion rates. The findings, however, do not point to any evidence of fiscal discipline. The Brazilian monetary system produces a strongly passive monetary behavior because the Central Bank generally operates by setting either a fixed interest rate in real terms or a fixed real exchange rate. A passive monetary policy turns seigniorage into an endogenous factor. At the same time, it boosts the growth of money supply whenever the self-fulfilling prophecies that inftation will grow indeed cause it to climb. This paper explores in detail some feature and consequences of monetary and exchange practices between 1991 and 1995 underlying that outcome.