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The selic rate for fiscal policy and reference

  The Selic rate came down sharply from mid-2003 and during much of 2004, and from the last quarter of 2008 to mid-2009. It then held steady...

 



The Selic rate came down sharply from mid-2003 and during much of 2004, and from the last quarter of 2008 to mid-2009. It then held steady at 8.65% until the first quarter of 2010 (subprime mortgage crisis). From mid-2011 to mid-2013, the Selic declined considerably, in the context of a high rate of inflation, around 6%. Although the interest rate then rose until the end of 2013 and remained relatively stable in 2014, this rise was evidently not enough to slow the inflation rate. This may suggest that monetary policy could have been more active, as these are indications of a passive monetary policy. The empirical results presented suggest that, in the ex post analysis, there are indications of coordination or attempted coordination between fiscal and monetary policies, as well as signs of lack of coordination between them, especially when there is a clear conflict of interest between the two. As an example of lack of coordination between fiscal and monetary policies, in mid-2013 the Central Bank of Brazil began to reverse its successive cuts in the Selic rate and to gradually increase it to try to reduce inflation. At the same time, the federal government continued to reduce the primary surplus in order to boost economic activity, which put upward pressure on inflation. The results of this conflict of interest between economic policies were recession, fiscal deterioration and high rates of inflation. VII. Final remarks This article has evaluated the monetary and fiscal policies implemented in Brazil in the period between November 2002 and December 2015.


 In this context, considering that monetary and fiscal policy rules in Brazil may have undergone different regimes, the present study used the Leeper model (1991 and 2005) to establish the chronology of policy rules in terms of their active or passive nature. Policy rules are estimated by means of a Markov-switching model in which the regimes are generated endogenously. The results support the affirmation that fiscal dominance occurred in 2010 and between 2013 and 2014. Monetary dominance obtained for much of 2003 and in the period 2005–2007. During the rest of the period, monetary and fiscal policies were seen to be conducted sometimes actively (2015) and sometimes passively (end-2003, 2004, 2008, 2009, 2011 and 2012). CEPAL Review N° 135 • December 2021 99 Tito Belchior S. Moreira, Mario Jorge Mendonça and Adolfo Sachsida Bibliography Balbino, C., E. Colla and V. Teles (2011), “A política monetária brasileira sob o regime de metas de inflação”, Revista Brasileira de Economia, vol. 65, No. 2, Rio de Janeiro, Getulio Vargas Foundation. Bohn, H. (1998), “The behavior of U.S. public debt and deficits”, The Quarterly Journal of Economics, vol. 113, No. 3, Oxford, Oxford University Press. Carvalho, A. and P. Feijó (2015), Entendendo resultados fiscais: teoria e prática de resultados primário e nominal, Brasilia, Gestão Pública. Chib, S. (1996), “Calculating posterior distributions and modal estimates in Markov mixture models”, Journal of Econometrics, vol. 75, No. 1, Amsterdam, Elsevier. Clarida, R., J. Galí and M. Gertler (2000), “Monetary policy rules and macroeconomic stability: evidence and some theory”, The Quarterly Journal of Economics, vol. 115, No. 1, Oxford, Oxford University Press. Davies, R. (1977), “Hypothesis testing when a nuisance parameter is present only under the alternative”, Biometrika, vol. 64, No. 2, Oxford, Oxford University Press. Davig, T. and E. Leeper (2011), “Monetary-fiscal policy interactions and fiscal stimulus”, European Economic Review, vol. 55, No. 2, Amsterdam, Elsevier. Dempster, A., N. Laird and D. Rubin (1977), “Maximum likelihood from incomplete data via the EM algorithm”, Journal of the Royal Statistical Society, vol. 39, No. 1, Hoboken, Wiley. Franses, P. and D. van Dijk (2000), Non-Linear Time Series Models in Empirical Finance, Cambridge, Cambridge University Press. Galí, J. and R. Perotti (2003), “Fiscal policy and monetary integration in Europe”, Economic Policy, vol. 18, No. 37, Oxford, Oxford University Press. Hamilton, J. (1994), Time Series Analysis, Princeton, Princeton University Press. (1991), “A quasi-Bayesian approach to estimating parameters for mixtures of normal distributions”, Journal of Business and Economic Statistics, vol. 9, No. 1, Milton Park, Taylor & Francis. (1989), “A new approach to the economic analysis of nonstationary time series and the business cycle”, Econometrica, vol. 57, No. 2, Cleveland, The Econometric Society.



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