IDEAS home Printed from https://ideas.repec.org/p/got/iaidps/165.html
   My bibliography  Save this paper

Inflation and Financial Development: Evidence from Brazil

Author

Listed:
  • Manoel Bittencourt

    (School of Economics, University of Cape Town / South Africa)

Abstract

We examine the impact of inflation on financial development in Brazil and the data available permit us to cover the period between 1985 and 2002. The results–based initially on time-series and then on panel time-series data and analysis, and robust for different estimators and financial development measures–suggest that inflation presented deleterious effects on financial development at the time. The main implication of the results is that poor macroeconomic performance, exemplified in Brazil by high rates of inflation, have detrimental effects to financial development, a variable that is important for affecting, e.g. economic growth and income inequality. Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.

Suggested Citation

  • Manoel Bittencourt, 2007. "Inflation and Financial Development: Evidence from Brazil," Ibero America Institute for Econ. Research (IAI) Discussion Papers 165, Ibero-America Institute for Economic Research.
    • Handle: RePEc:got:iaidps:165
    as

    Download full text from publisher

    File URL: http://www2.vwl.wiso.uni-goettingen.de/ibero/working_paper_neu/DB165.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    2. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    3. International Monetary Fund, 2005. "Latin American Central Bank Reform: Progress and Challenges," IMF Working Papers 2005/114, International Monetary Fund.
    4. Beck, Thorsten & Levine, Ross, 2004. "Stock markets, banks, and growth: Panel evidence," Journal of Banking & Finance, Elsevier, vol. 28(3), pages 423-442, March.
    5. Eliana Cardoso & Andre Urani & Andre Urani, 1995. "Inflation and Unemployment as Determinants of Inequality in Brazil: The 1980s," NBER Chapters, in: Reform, Recovery, and Growth: Latin America and the Middle East, pages 151-176, National Bureau of Economic Research, Inc.
    6. Clark, Todd E, 1997. "Cross-country Evidence on Long-Run Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 70-81, January.
    7. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, April.
    8. Meyer Bittencourt, Manoel F., 2006. "Financial Development and Inequality: Brazil 1985-99," Proceedings of the German Development Economics Conference, Berlin 2006 5, Verein für Socialpolitik, Research Committee Development Economics.
    9. Ms. Edda Zoli, 2007. "Financial Development in Emerging Europe: The Unfinished Agenda," IMF Working Papers 2007/245, International Monetary Fund.
    10. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    11. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-558, June.
    12. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    13. Georges Bresson & Badi H. Baltagi & Alain Pirotte, 2007. "Panel unit root tests and spatial dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 339-360.
    14. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
    15. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
    16. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    17. Chihwa Kao & Lorenzo Trapani & Giovanni Urga, 2012. "Asymptotics for Panel Models with Common Shocks," Econometric Reviews, Taylor & Francis Journals, vol. 31(4), pages 390-439.
    18. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    19. Ferreira da Silva, Gisele, 2002. "The impact of financial system development on business cycles volatility: cross-country evidence," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 233-253, June.
    20. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232316, April.
    21. Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December.
    22. Asli Demeirgüç-Kunt & Ross Levine (ed.), 0. "Finance and Growth," Books, Edward Elgar Publishing, number 17119.
    23. Manoel BITTENCOURT, 2009. "Macroeconomic Performance And Inequality: Brazil, 1983–94," The Developing Economies, Institute of Developing Economies, vol. 47(1), pages 30-52, March.
    24. Stephen R. Bond, 2002. "Dynamic panel data models: a guide to micro data methods and practice," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 141-162, August.
    25. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    26. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
    27. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers 09/02, Institute for Fiscal Studies.
    28. Filho, Irineu de Carvalho & Chamon, Marcos, 2012. "The myth of post-reform income stagnation: Evidence from Brazil and Mexico," Journal of Development Economics, Elsevier, vol. 97(2), pages 368-386.
    29. Stanley Fischer, 2005. "IMF Essays from a Time of Crisis: The International Financial System, Stabilization, and Development," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262562162, April.
    30. Manoel Bittencourt, 2007. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 163, Ibero-America Institute for Economic Research.
    31. Clarke, George & Xu, Lixin Colin & Zou, Heng-fu, 2003. "Finance and income inequality : test of alternative theories," Policy Research Working Paper Series 2984, The World Bank.
    32. Huybens, Elisabeth & Smith, Bruce D., 1998. "Financial Market Frictions, Monetary Policy, and Capital Accumulation in a Small Open Economy," Journal of Economic Theory, Elsevier, vol. 81(2), pages 353-400, August.
    33. Agustin Carstens & Luis I. Jacome H., 2005. "Latin American Central Bank Reform: Progress and Challenges," Macroeconomics 0509022, University Library of Munich, Germany.
    34. Mihasonirina Andrianaivo & Charles Amo Yartey, 2009. "Understanding the growth of african financial markets," Post-Print halshs-00422047, HAL.
    35. Alessandra Bonfiglioli, 2004. "Equities and Inequality," 2004 Meeting Papers 256, Society for Economic Dynamics.
    36. Moore, B. J., 1986. "Inflation and financial deepening," Journal of Development Economics, Elsevier, vol. 20(1), pages 125-133.
    37. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    38. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    39. Bruce D. Smith & John H. Boyd, 1998. "Capital market imperfections in a monetary growth model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(2), pages 241-273.
    40. Azariadis, Costas & Smith, Bruce D, 1996. "Private Information, Money, and Growth: Indeterminacy, Fluctuations, and the Mundell-Tobin Effect," Journal of Economic Growth, Springer, vol. 1(3), pages 309-332, September.
    41. Joseph H. Haslag & Jahyeong Koo, 1999. "Financial repression, financial development and economic growth," Working Papers 9902, Federal Reserve Bank of Dallas.
    42. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    43. Manoel Bittencourt, 2010. "Financial development and inequality: Brazil 1985–1994," Economic Change and Restructuring, Springer, vol. 43(2), pages 113-130, May.
    44. Mr. Pablo F Druck & Mr. Alexander Plekhanov & Mr. Mario Dehesa, 2007. "Relative Price Stability, Creditor Rights, and Financial Deepening," IMF Working Papers 2007/139, International Monetary Fund.
    45. Stephen Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    46. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    47. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
    48. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
    49. William Easterly, 2002. "The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550423, April.
    50. Patrick Honohan, 2004. "Financial development, growth, and poverty: how close are the links?," Policy Research Working Paper Series 3203, The World Bank.
    51. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, July.
    52. Francisco Ferreira & Julie Litchfield, 2001. "Education or Inflation? The Micro and Macroeconomics of the Brazilian Income Distribution During 1981-1995," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 38(114), pages 209-238.
    53. Mr. Christopher W. Crowe, 2006. "Inflation, Inequality, and Social Conflict," IMF Working Papers 2006/158, International Monetary Fund.
    54. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
    55. Mihasonirina Andrianaivo & Charles Amo Yartey, 2009. "Understanding the Growth of African Financial Markets," IMF Working Papers 2009/182, International Monetary Fund.
    56. Huybens, Elisabeth & Smith, Bruce D., 1999. "Inflation, financial markets and long-run real activity," Journal of Monetary Economics, Elsevier, vol. 43(2), pages 283-315, April.
    57. Mr. Anoop Singh & Mr. Martin D. Cerisola, 2006. "Sustaining Latin America's Resurgence: Some Historical Perspectives," IMF Working Papers 2006/252, International Monetary Fund.
    58. John H. Boyd & Sangmok Choi & Bruce Smith, 1996. "Inflation, financial markets and capital formation," Proceedings, Federal Reserve Bank of St. Louis, vol. 78(May), pages 9-35.
    59. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    60. Kiguel, Miguel A. & Liviatan, Nissan, 1992. "Stopping three big inflations (Argentina, Brazil, and Peru)," Policy Research Working Paper Series 999, The World Bank.
    61. Schreft, Stacey L. & Smith, Bruce D., 1997. "Money, Banking, and Capital Formation," Journal of Economic Theory, Elsevier, vol. 73(1), pages 157-182, March.
    62. Thorsten Beck & Asli Demirgüç-Kunt & Ross Levine, 2007. "Finance, inequality and the poor," Journal of Economic Growth, Springer, vol. 12(1), pages 27-49, March.
    63. Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, June.
    64. Ricardo Paes de Barros & Carlos Corseuil & Rosane Mendonça & Maurício Cortez Reis, 2015. "Poverty, Inequality and Macroeconomic Instability," Discussion Papers 0093, Instituto de Pesquisa Econômica Aplicada - IPEA.
    65. Mr. Irineu E de Carvalho Filho & Mr. Marcos d Chamon, 2006. "The Myth of Post-Reform Income Stagnation in Brazil," IMF Working Papers 2006/275, International Monetary Fund.
    66. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    67. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September.
    68. Kyung‐So Im & Junsoo Lee & Margie Tieslau, 2005. "Panel LM Unit‐root Tests with Level Shifts," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 393-419, June.
    69. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    70. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    71. Mr. Anoop Singh, 2006. "Macroeconomic Volatility: The Policy Lessons from Latin America," IMF Working Papers 2006/166, International Monetary Fund.
    72. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    73. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bittencourt, Manoel, 2012. "Financial development and economic growth in Latin America: Is Schumpeter right?," Journal of Policy Modeling, Elsevier, vol. 34(3), pages 341-355.
    2. Manoel BITTENCOURT, 2009. "Macroeconomic Performance And Inequality: Brazil, 1983–94," The Developing Economies, Institute of Developing Economies, vol. 47(1), pages 30-52, March.
    3. Manoel Bittencourt, 2010. "Financial Development and Economic Growth in Latin America: Schumpeter is Right!," Working Papers 201014, University of Pretoria, Department of Economics.
    4. Bittencourt, Manoel, 2012. "Inflation and economic growth in Latin America: Some panel time-series evidence," Economic Modelling, Elsevier, vol. 29(2), pages 333-340.
    5. Manoel Bittencourt, 2010. "Financial development and inequality: Brazil 1985–1994," Economic Change and Restructuring, Springer, vol. 43(2), pages 113-130, May.
    6. Manoel Bittencourt, 2007. "Macroeconomic Performance and Inequality: Brazil 1983-1994," Ibero America Institute for Econ. Research (IAI) Discussion Papers 163, Ibero-America Institute for Economic Research.
    7. Mukherjee Deepraj & Dutta Nabamita, 2013. "Do Political Institutions and Culture Jointly Matter for Financial Development? A Cross-Country Panel Investigation," Global Economy Journal, De Gruyter, vol. 13(2), pages 203-232, June.
    8. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    9. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    10. Peñasco, Cristina & del Río, Pablo & Romero-Jordán, Desiderio, 2017. "Gas and electricity demand in Spanish manufacturing industries: An analysis using homogeneous and heterogeneous estimators," Utilities Policy, Elsevier, vol. 45(C), pages 45-60.
    11. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    12. Andres, Javier & Hernando, Ignacio & Lopez-Salido, J. David, 2004. "The role of the financial system in the growth-inflation link: the OECD experience," European Journal of Political Economy, Elsevier, vol. 20(4), pages 941-961, November.
    13. Vighneswara Swamy & Munusamy Dharani, 2020. "Thresholds of financial development in the Euro area," The World Economy, Wiley Blackwell, vol. 43(6), pages 1730-1774, June.
    14. Manoel Bittencourt, 2009. "Polarisation, Populism and Hyperinflation[s]: Some Evidence from Latin America," Working Papers 200921, University of Pretoria, Department of Economics.
    15. Manoel Bittencourt, 2012. "Democracy, populism and hyperinflation: some evidence from Latin America," Economics of Governance, Springer, vol. 13(4), pages 311-332, December.
    16. Eberhardt, Markus & Teal, Francis, 2008. "Modeling technology and technological change in manufacturing: how do countries differ?," MPRA Paper 10690, University Library of Munich, Germany.
    17. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    18. Yongfu Huang, 2011. "Private investment and financial development in a globalized world," Empirical Economics, Springer, vol. 41(1), pages 43-56, August.
    19. Manoel Bittencourt & Reneé Eyden & Monaheng Seleteng, 2015. "Inflation and Economic Growth: Evidence from the Southern African Development Community," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 411-424, September.
    20. Boukhatem, Jamel, 2016. "Assessing the direct effect of financial development on poverty reduction in a panel of low- and middle-income countries," Research in International Business and Finance, Elsevier, vol. 37(C), pages 214-230.

    More about this item

    Keywords

    Financial development; inflation; Brazil;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:got:iaidps:165. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Sabine Jaep (email available below). General contact details of provider: https://edirc.repec.org/data/ibgoede.html .

    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.