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Title:Monetary regimes and macroeconomic policy: An empirical analysis of the Brazilian economy
Author(s):Rocha, Fabiana Fontes
Doctoral Committee Chair(s):Villamil, Anne P.
Department / Program:Economics
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Economics, Theory
Abstract:The purpose of this thesis is a characterization of the monetary regime followed by the Brazilian authorities during the 80's and beginning of the 90's, and its consequences for the credibility of anti-inflationary policies, the solvency condition of the government, and the power of restrictive monetary policies.
The first essay discusses the credibility of two disinflationary reforms, the Cruzado and Collor Plans. Credibility is defined as the subjective probability that the government is following the announced policies. Both monetary reforms encourage a policy for the monetary authority that would be appropriate for a Ricardian regime but advocating plans for taxes and expenditures that could be feasible only under a fiscal dominance regime. Such monetary and fiscal policies are, however, incompatible. It is not feasible to carry both at the same time, and this explains the overall low credibility, and ultimate failure, of these two economic reforms.
The second essay addresses the solvency condition of the government. The empirical evidence is consistent with intertemporal budget balance. However, until February 1990, just before the government froze 80% of the financial assets, the debt shows an unstable path. Besides the results indicate that seignorage is an extremely important source of revenue for the government. If seignorage is excluded the government budget is not balanced in present value terms, the opposite happening if seignorage is included.
The third essay tests the power of monetary policy to reduce inflation under a fiscal dominance regime. The results indicate an elasticity of real money demand with respect to expected inflation close to zero. In this case, given the assumptions about fiscal policy and the rate of return on government bonds, the power of restrictive monetary policy to fight inflation is substantially reduced. Tight money can at most rearrange the timing of the inflation tax, obtaining a lower inflation today at the expense of a higher inflation rate in the future.
Issue Date:1995
Rights Information:Copyright 1995 Rocha, Fabiana Fontes
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9624471
OCLC Identifier:(UMI)AAI9624471

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