The Interaction of Monetary and Fiscal Policy: The Brazilian Case
10 Pages Posted: 24 May 2012
Date Written: May 24, 2012
Abstract
We tested, empirically, whether the Brazilian fiscal policy for the period between 1995: I to 2008: III was active or passive. To analyze fiscal policy transmission mechanisms, we estimated functions by which the public debt/GDP ratio affects investment, primary surplus, output gap and the demand for money. The ratio of public debt to GDP was found to be statistically significant, positively affecting the demand for money and the primary surplus, whereas it was found to negatively affect the level of investment and the output gap. We conclude that the Brazilian regime was non-Ricardian in the context of fiscal dominance.
Keywords: active and passive policies, non-ricardian regime, public debt and fiscal dominance regime
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