The Monetary and Fiscal History of Brazil, 1960-2016

Ayres, João; García, Marcio; Guillen, Diogo; Kehoe, Patrick J.

doi:10.3386/w25421

Cited by 6 publications

(4 citation statements)

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“…Nonetheless, the Yen is broadly considered a "safe haven" currency. Ayres, Garcia, Guillen, and Kehoe (2019) cite the poor institutional framework of monetary authorities and Brazil's passive monetary policy as reasons behind the weakness of its currency.…”

Section: Validation and Presentation Of The Currency Effectiveness Indexmentioning

confidence: 99%

What Determines the Effectiveness of a Currency: A Composite Index

Karakostas

2022

IJAEFA

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The variety and diversity of currencies forms a significant aspect of the international political economy and especially the global economic relations among countries. It can be said that the “language” of countries’ international economic activities is the variation displayed by their currencies. A plethora of papers has indicated a relationship between exchange rates and many facets of international economic relations, with a negative, positive, or even neutral link. Exchange rates can fluctuate due to exogenous events or due to endogenous choice. Whatever the cause, it is certain that exchange rate fluctuation can influence many features of a country’s economy. Specifically, exchange rates can affect macroeconomic variables, trade performance and others. So, what are the prerequisites that shape the relationship between a country’s exchange rates and its economic activities? These prerequisites include the international, political and economic aspects of a country. The combination of these factors is what shapes the country’s relative effectiveness and its “freedom” to use its currency to achieve its economic goals. The current paper shows that the combination of the international, political and economic aspects of a country is fundamental to its freedom to use its currency for this purpose. The methodology adopted is the creation of a Composite Index.

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Section: Validation and Presentation Of The Currency Effectiveness Indexmentioning

confidence: 99%

What Determines the Effectiveness of a Currency: A Composite Index

Karakostas

2022

IJAEFA

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“…That is due to the money multiplier that generates seigniorage-like revenues in the banking system, usually referred to as the float. In Brazil, for example, the decline in inflation was followed by a banking crisis and the government had to adopt policies to restructure both private and public banks through mergers and acquisitions (Ayres et al, 2019).…”

Section: Inflation-stabilization Plans In Latin America and The Carib...mentioning

confidence: 99%

Inclusion in Times of Covid-19

2020

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“…In addition, the parallel budget between the Brazilian Treasury and BNDES was used as a mechanism to fake primary surplus as a fiscal measure. That practice turned out to entail the impeachment process of then president Dilma Rousseff (Werneck (2014a) and Ayres et al (2019)). The abandonment of a responsible fiscal policy resulted in credibility crises and record debt levels (Figure 1.1).…”

Section: Introductionmentioning

confidence: 99%

“…This model was chosen because it features important characteristics of the Brazilian economy, such as high indexation, the presence of risk premium to foreign securities, and the imperfect passthrough from importing prices and nominal exchange rates to consumer prices. The fiscal limit approach of Bi (2012) turns out to be a consistent framework for analyzing the economic behavior of Brazil since our high tax burden can be seen as a constraint in the Treasury's capability to raise revenues (Ayres et al (2019)). In terms of the literature, the proposed model can fill a gap, since it has not yet been developed a work based on Bi's theory of fiscal limits for an open economy where the monetary authority conduces open market operations with a risky asset and a default occurs in terms of domestic government debt.…”

Section: Introductionmentioning

confidence: 99%

Fiscal Risk in an Emerging Open Economy: The Brazilian Case

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What if the fiscal risk is not negligible? Could the Central Bank continue effectively bringing inflation to the target when it ignores the default risk? To address those questions, we propose a small open economy DSGE model with an endogenous fiscal limit, where the government can default on its domestic bonds, and monetary authority may account for that. We evaluate dynamics under two different Central Bank decision rules: when (i) it wrongly tracks that risk, and (ii) it perfectly tracks default risk. The model is calibrated based on Brazilian data, as its recent budgetary deterioration makes the country an ideal case to be studied. We find that high inflation and depreciated currency coexist with a high interest rate when the monetary authority does not fully account for the default risk. The higher the default probability, the greater the differences across the effects of the two types of policy rules that we analyzed. For a central banker to restore the inflation target, she must fully track default risk in its decision rule. In addition, our model generates an endogenous premium across countries' interest rates due to differences in sovereign default risk.

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The Monetary and Fiscal History of Brazil, 1960-2016

Cited by 6 publications

References 1 publication

What Determines the Effectiveness of a Currency: A Composite Index

What Determines the Effectiveness of a Currency: A Composite Index

Inclusion in Times of Covid-19

Fiscal Risk in an Emerging Open Economy: The Brazilian Case

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