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Fiscal Policy in Brazil through the Lens of an Estimated DSGE Model

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  • Fabia A. de Carvalho
  • Marcos Valli

Abstract

This paper takes Brazilian data to an open economy DSGE model that features realistic aspects of fiscal policy in Brazil. The model incorporates primary surplus targets, cyclical expenditures and social programs in the form of public transfers, public investment and distortive taxation. We test for two competing specifications of the role of public capital in the real economy. Bayesian model comparison favors the infrastructure approach to public capital. The presence of non-Ricardian households allows fiscal policy shocks to affect real economy aggregates and distribution. The model is used to address questions regarding the effect of shocks to different fiscal policy instruments upon the business cycle. We also investigate whether recent fiscal policy in Brazil has exerted significant inflationary pressures.

Suggested Citation

  • Fabia A. de Carvalho & Marcos Valli, 2011. "Fiscal Policy in Brazil through the Lens of an Estimated DSGE Model," Working Papers Series 240, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:240
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    References listed on IDEAS

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    1. Marcos Valli & Fabia A. de Carvalho, 2010. "Fiscal and Monetary Policy Interaction: a Simulation Based Analysis of a Two-country New Keynesian DSGE Model with Heterogeneous Households," Working Papers Series 204, Central Bank of Brazil, Research Department.
    2. Forni, Lorenzo & Monteforte, Libero & Sessa, Luca, 2009. "The general equilibrium effects of fiscal policy: Estimates for the Euro area," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 559-585, April.
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    6. Warne, Anders & Coenen, Günter & Christoffel, Kai, 2008. "The new area-wide model of the euro area: a micro-founded open-economy model for forecasting and policy analysis," Working Paper Series 944, European Central Bank.
    7. Minella, André, 2003. "Monetary Policy and Inflation in Brazil (1975-2000): A VAR Estimation," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 57(3), July.
    8. Ratto, Marco & Roeger, Werner & Veld, Jan in 't, 2009. "QUEST III: An estimated open-economy DSGE model of the euro area with fiscal and monetary policy," Economic Modelling, Elsevier, vol. 26(1), pages 222-233, January.
    9. Juan Pablo Medina & Claudio Soto, 2007. "Copper Price, Fiscal Policu and Business Cycle in Chile," Working Papers Central Bank of Chile 458, Central Bank of Chile.
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    11. Nogueira, José Ricardo & Siqueira, Rozane Bezerra de & de Souza, Evaldo Santana, 2001. "A Incidência Final dos Impostos Indiretos no Brasil: Efeitos da Tributação de Insumos," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 55(4), October.
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    Cited by:

    1. Pablo N. D’Erasmo, 2016. "Access to Credit and the Size of the Formal Sector," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 143-199, April.
    2. Cavalcanti, Marco A.F.H. & Vereda, Luciano & Doctors, Rebeca de B. & Lima, Felipe C. & Maynard, Lucas, 2018. "The macroeconomic effects of monetary policy shocks under fiscal rules constrained by public debt sustainability," Economic Modelling, Elsevier, vol. 71(C), pages 184-201.
    3. Georgiadis, Georgios & Jančoková, Martina, 2020. "Financial globalisation, monetary policy spillovers and macro-modelling: Tales from 1001 shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 121(C).
    4. Tabak, Benjamin M. & Takami, Marcelo & Rocha, Jadson M.C. & Cajueiro, Daniel O. & Souza, Sergio R.S., 2014. "Directed clustering coefficient as a measure of systemic risk in complex banking networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 211-216.
    5. Johannes Hermanus Kemp & Hylton Hollander, 2020. "A medium-sized, open-economy, fiscal DSGE model of South Africa," WIDER Working Paper Series wp-2020-92, World Institute for Development Economic Research (UNU-WIDER).
    6. Pablo D`Erasmo, 2013. "Access to Credit and the Size of the Formal Sector in Brazil," Research Department Publications IDB-WP-404, Inter-American Development Bank, Research Department.
    7. Cyntia Freitas Azevedo & Angelo Marsiglia Fasolo, 2015. "Effective Tax Rates on Consumption and Factor Incomes: a quarterly frequency estimation for Brazil," Working Papers Series 398, Central Bank of Brazil, Research Department.
    8. Ornelas, José Renato Haas & Barbachan, José Santiago Fajardo & Farias, Aquiles Rocha de, 2012. "Estimating relative risk aversion, risk-neutral and real-world densities using brazilian real currency options," EBAPE Working Papers 1, FGV EBAPE - Escola Brasileira de Administração Pública e de Empresas (Brazil).
    9. Igor Ézio Maciel Silva & Nelson Leitão Paes & Jocildo Fernandes Bezerra, 2016. "Evidences Of Incomplete Interest Rate Pass-Through, Directed Credit And Cost Channel Of Monetary Policy In Brazil," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 036, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    10. Cavalcanti, Marco A. F. H. & Vereda, Luciano, 2015. "Fiscal Policy Multipliers in a DSGE Model for Brazil," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 35(2), March.

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