The Monetary and Fiscal History of Brazil: 1960–2016

63 Pages Posted: 24 Aug 2018 Last revised: 2 Mar 2019

See all articles by João Ayres

João Ayres

Inter American Development Bank

Marcio G. P. Garcia

Pontifical Catholic University - Department of Economics

Diogo Guillen

Itau-BBA Bank

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 20, 2018

Abstract

Brazil had a long period of high inflation. It peaked around 100% per year in 1964, and accelerated again in the 1970s, reaching levels above 100% on average between 1980 and 1994. This last period coincided with severe balance of payments problems and economic stagnation that followed the external debt crisis in the early 1980s. We show that the high-inflation period (1960-1994) was characterized by a combination of deficits, passive monetary policy, and constraints to debt financing. The transition to the low-inflation period (1995-2016) was characterized by improvements in all those instances, but it did not lead to significant improvements in economic growth. In addition, we document a strong correlation between inflation rates and seigniorage revenues, but observing that the underlying inflation rates are too high for the modest levels of seigniorage revenues. Finally, we discuss the role of monetary passiveness and indexation in accounting for the unique features of the inflation dynamics in Brazil in comparison to the other Latin American countries.

Suggested Citation

Ayres, João and Garcia, Marcio G. P. and Guillen, Diogo and Kehoe, Patrick J., The Monetary and Fiscal History of Brazil: 1960–2016 (December 20, 2018). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-66. Available at SSRN: https://ssrn.com/abstract=3238171 or http://dx.doi.org/10.2139/ssrn.3238171

João Ayres

Inter American Development Bank ( email )

Marcio G. P. Garcia (Contact Author)

Pontifical Catholic University - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil
(5521) 274 2797 or 294 5490 (Phone)
(5521) 294 2095 (Fax)

Diogo Guillen

Itau-BBA Bank ( email )

Brazil

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-204-5525 (Phone)
612-204-5515 (Fax)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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