Macroeconomic Policy in Brazil: Inflation Targeting, Public Debt Structure and Credit Policies

34 Pages Posted: 9 Oct 2014

See all articles by Fernando López Vicente

Fernando López Vicente

Banco de España

José María Serena

Bank for International Settlements (BIS)

Date Written: October 9, 2014

Abstract

Macroeconomic policy in Latin America underwent significant changes in the late nineties. Brazil is an outstanding example: inflation targeting was introduced in 1999 and a new fiscal policy framework was set up in 2000 with the Fiscal Responsibility Law. However, two elements of the Brazilian economy constrained the apparently state-of-the-art macroeconomic policy framework: the composition of public debt and the structure of the banking system. This paper discusses why macroeconomic policies were restricted by those factors and how they have evolved differently. The structure of public debt, characterised by indexation, short-term maturities and short US dollar positions, imposed significant constraints on macroeconomic policies during the 2000s. Nevertheless, these vulnerabilities were gradually overcome and the composition of public debt has remained stable in the aftermath of the global financial crisis. At the same time, the structure of the banking system was characterised by credit segmentation and high interest spreads, and these characteristics are still present today. These features have become key elements in understanding current macroeconomic developments, credit dynamics and the economic policy stance.

Keywords: public debt, central banking, credit policies, Brazil.

JEL Classification: H30, E58, E63

Suggested Citation

López Vicente, Fernando and Serena, Jose Maria, Macroeconomic Policy in Brazil: Inflation Targeting, Public Debt Structure and Credit Policies (October 9, 2014). Banco de Espana Occasional Paper No. 1405. Available at SSRN: https://ssrn.com/abstract=2507676 or http://dx.doi.org/10.2139/ssrn.2507676

Fernando López Vicente (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose Maria Serena

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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