Abstract
This chapter analyses theoretically and empirically the relationship between monetary institutions and macroeconomic performance in Brazil, since the adoption of the Inflation Targeting Regime (ITR) in 1999. First, we present a brief theoretical discussion on the ITR, providing details of the Brazilian experience. Second, we discuss the determinants of inflation in Brazil. Finally, we discuss the main results of the VAR model.
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Notes
- 1.
These equations are based on Carlin and Soskice (2006).
- 2.
The IPCA is checked by the IBGE (2017a) through a monthly survey covering families with incomes between one and forty minimum salaries, in various metropolitan regions of Brazil. Since 2012, the percentage weight of the groups of items that make up the IPCA is as follows: Food and beverage = 23.12%; Transport = 20.54%; Housing = 14.62%; Health and personal care = 11.09%; Personal expenses = 9.94%; Clothing = 6.67%; Communication = 4.96%; Household items = 4.69%; and Education = 4.37%.
- 3.
The importance of the exchange rate in determining prices in Brazil has been studied by several authors, such as Belaisch (2003), Minella et al. (2003), Carneiro et al. (2006) and Minella and Correia (2005). When faced with an increase (reduction) in the interest rate, variations in the inflow (outflow) of foreign capital occur, causing a depreciation (appreciation) of the domestic currency. In addition to the direct effects on the price of tradable goods, there is also the indirect effects on domestic prices in the form of variations in the cost of imported raw materials and inputs, as well as the substitution effect of imported products for similar domestic ones, or vice versa.
- 4.
The composition of the Extended National Consumer Price Index (IPCA) is as follows: food and beverages (23.12%), transport (20.54%), housing (14.62%), health and personal care (11.09%), personal expenses (9.94%), clothing (6.67%), communication (4.96%), household goods (4.69%), and education (4.37%).
- 5.
According to the NT data, with reference to December 2016, the Brazilian public debt totalled around 70.5% of GDP. The configuration of the public debt bonds was as follows: pre-fixed interest rate, which includes Selic, was around 35.7%, price index was approximately 31.8%, floating interest rates were around 28.2% and 4.2% was indexed at the exchange rate (Tesouro Nacional 2017).
- 6.
Under the command of the then Finance Minister, a strong fiscal adjustment was implemented in order to achieve a primary surplus target of 1.2% of the GDP, equivalent to R$66.3 billion. This would come from reducing spending (a cut in the budget of various ministries, changes in the labour and social security legislation, the end of exemptions in segments, such as the exporter, and late payments) and increasing revenue (a rise in the taxes of various products and services, such as gasoline and electricity). Due to the deterioration in economic performance and after a number of revisions throughout the year, a surplus of around 0.8% of the GDP, around R$51.8 billion was achieved in 2015.
- 7.
- 8.
Details for the VAR methodology can be found in Hamilton (1994).
- 9.
The reason for using this proxy is because there are no data on the monthly GDP in Brazil. Thus, the series that is given is, in fact, an interpolation of the quarterly GDP. Moreover, the choice of the industry’s GDP as a proxy for the total GDP of the economy is justified by the fact that the behaviour of these variables is quite similar, even if the industry’s GDP represents less than 30.0% of Brazilian GDP.
- 10.
The choice of the VAR model is justified by the fact that all series used are I(1), but do not have a cointegration relationship.
- 11.
The results of these two methodologies and the behavioural patterns are very similar to the relationship between the variables studied. However, we present the results of the structural VAR because the order of the variables in the model is determined according to economic theory and does not follow a strict ordering as in Cholesky’s ordering.
- 12.
In recent years, a number of authors have defended the importance of the exchange rate as a key variable in a long-term economic growth strategy. According to them, to make a range of products with higher value added and technological intensity, a competitive exchange rate can result in higher economic growth in the long run. See, for example, Rodrik (2008), Williamson (2003) and Bresser-Pereira et al. (2015).
- 13.
- 14.
- 15.
See, for instance, Ferrari Filho and Schifino (2010).
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Araújo, E., Araújo, E., Ferrari Filho, F. (2017). Monetary Institutions and Macroeconomic Performance in Brazil after the Global Financial Crisis of 2007–2008. In: Arestis, P., Troncoso Baltar, C., Prates, D. (eds) The Brazilian Economy since the Great Financial Crisis of 2007/2008. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-64885-9_3
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