An Analysis of the Interaction Between Monetary and Fiscal Policies in Brazil

Lívia Carolina Machado Melo, Cleomar Gomes da Silva


This paper examines monetary and fiscal policy rules in Brazil for the period 2003-2014, based on a New Keynesian Macro Model estimated via GMM System. The main results show an aggregate demand focused on the lagged GDP output and on GDP growth expectations. As for inflation, the use of hybrid Phillips curve, as well as the influence of the exchange rate, seems to be the case for Brazil. Regarding the Taylor Rule, the Central Bank’s reaction is gradual, via interest rate smoothing, and the expected inflation and GDP are important for the determination of the rule. Therefore, monetary policy seems to be counter-cyclical. As for the Fiscal Policy Rule, the dynamics of economic activity leads to a decrease in the public sector borrowing requirement (PSBR), as % of GDP, which is an indication of a counter-cyclical fiscal policy and coordination of economic policies. However, this may only indicate that GDP grows faster than PSBR, and not that the latter is decreasing. As a result, it is not possible to assure that the Brazilian fiscal policy is actually coordinated with the country’s monetary policy.

 JEL codes: E52, E63, C32


      Online Appendix




Monetary Policy, Fiscal Policy, Generalized Method of Moments

Full Text:



Aktas, Z.; Kaya, N., Özlale, U., 2010. Coordination between Monetary Policy and Fiscal Policy for an Inflation Targeting Emerging Market. Journal of International Money and Finance, 29, p. 123-38.

Araujo, V., Gentil, D., 2011. Avanços, recuos, acertos e erros: uma análise da resposta da política econômica brasileira à crise financeira internacional. IPEA. Texto para Discussão n°1602. Rio de Janeiro.

Barros, G. L., Afonso, J. R., 2013. Sobre “Fazer o Cumprimento” da Meta de Superávit Primário de 2012. FGV: Texto para Discussão, Ensaio Técnico.

Benigno, P., Woodford, M., 2003. Optimal Monetary and Fiscal Policy: A Linear-Quadratic Approach. NBER Macroeconomics Annual, 18, p. 271-333.

Blake, A. P., Kirsanova, T., 2011. Inflation-Conservatism and Monetary Fiscal Policy Interactions. International Journal of Central Banking, v. 7, n. 2, p. 41- 83.

Blinder, A, J., 1982. Issue in the Coordination of Monetary Policy and Fiscal Policy. Proceedings of a Conference on Monetary Policy Issues in the 1980s (Federal Reserve Bank of Kansas City), p.3-34.

Bresser-Pereira, L.C.; Gomes, C., 2009. O regime de metas de inflação no Brasil e a armadilha da taxa de juros/taxa de câmbio. In: OREIRO, J.L.; PAULA, L.F.; SOBREIRA, R. Política monetária, bancos centrais e metas de inflação: teoria e experiência brasileira. FGV, Rio de Janeiro, p. 21-51.

Bueno, R. de L. da. S., 2008. Econometria de Séries Temporais. São Paulo: Cengage.

Curado, M., Nascimento, G.M., 2015. O Governo Dilma: da euforia ao desencanto. Revista Paranaense de Desenvolvimento, v. 36, p.33-48.

Dickey, D. A., Fuller, W. A., 1979. Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, v.74, n. 366, p. 427-431.

Fialho, M. M., Portugal, M. S., 2005. Monetary and fiscal policy interactions in Brazil: an application of the fiscal theory of the price level. Pesquisa e Planejamento Econômico, v. 35, n. 2, p. 657-685.

Gadelha, S.R.B., Divino, J.A., 2008. Dominância fiscal ou dominância monetária no Brasil? Uma análise de causalidade. Economia Aplicada, v. 12, n. 4, p. 659-675.

Galí, J., Gertler, M., 1999. Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, 44, p. 195–222.

Gomes, C., Aidar, O., 2005. Política Monetária no Brasil: Os Desafios do Regime de Metas de Inflação. Economia Ensaios, 19, p.45-63.

Gomes, C.; Pires, M. C. C., Terra, F. H. B., 2014. The Effects of Public Debt Management on Macroeconomic Equilibrium: An Analysis of the Brazilian Economy. Economia, 15, p. 174-188.

Gomes, C., Vieira, F. V., 2014. Monetary and Fiscal Policy in the World Economy: Coordination Before and After the Financial Crisis. Encontro Brasileiro de Econometria, 36, Natal – RN.

Greene, W. H., 2012. Econometric Analysis. Essex: Pearson, 7th ed.

Hallet, A. H.; Libich, J., Stehlík, P., 2011. Welfare improving coordination of fiscal and monetary policy. AUCO Czech Economic Review, 5, p. 07–26.

Hansen, L. P., 1982. Large Sample Properties of Generalized Method of Moments Estimators. Econometrica, 50, p. 1029-1054.

Kirsanova, T.; Stehn, S. J., Vines, D., 2005. Five-Equation Macroeconomics: A Simple View of the Interactions Between Fiscal Policy and Monetary Policy. Oxford Review of Economic Policy, v. 21(4), p. 532-564.

Kwiatkowski, D.; Phillips, P. C. B.; Schmidt, P., Shin, Y. , 1992. Testing the Null Hypothesis of Stationary Against the Alternative of a Unit Root: How Sure are We that Economic Time Series are Non-Stationary? Journal of Econometrics, v. 54, p. 159-178.

Laurini, M. P., Hotta, L. K., 2009. Estimação de modelos de volatilidade estocástica usando métodos de verossimilhança empírica/mínimo contraste generalizados. Ibmec Working Paper, n. 190.

Lambertini, L., Rovelli, R., 2003. Monetary and fiscal policy coordination and macroeconomic stabilization: A theoretical analysis. Working Paper, n. 464.

Leeper, E. M., 1991. Equilibria Under ‘Active’ and ‘Passive’ Monetary and Fiscal Policies. Journal of Monetary Economics, v. 27, p. 129-147.

Lombardo, G., Sutherland, A., 2003. Monetary and Fiscal Interaction in Open Economics. European Central Bank Working Paper Series, Working Paper, n. 289.

Minella, A.; Freitas, P. S.; Goldfajn, I., Muinhos, M. K., 2003. Inflation Targeting in Brazil: Constructing Credibility under Exchange Rate Volatility. Journal of International Money and Finance, v. 22, p. 1015–1040.

Mitreska, A.; Vojnovic, M. K.; Georgievska, L.; Jovanovic, B., Petkovska, M., 2010. Did the Crisis Change it All? Evidence from Monetary and Fiscal Policy. MPRA Paper – University Library of Munich, Germany.

Moreira, T.; Soares, F.; Sachsida, A., Loureiro, P., 2011. The Interaction of Monetary and Fiscal Policy: The Brazilian Case. Modern Economy, v. 2, n. 2, p. 114-123.

Muscatelli, V. A.; Tirelli, P., Trecroci, C., 2004. The Interaction of Fiscal and Monetary Policies: Some Evidence Using Structural Econometric Models. Money Macro and Finance (MMF) Research Group Conference.

Persson, M.; Persson, T., Svensson, L.E.O., 2006. Time Consistency of Fiscal and Monetary Policy: A Solution. Econometrica, v. 74(1), p. 193-212.

Rocha, F., Silva, E. P., 2004. Teoria Fiscal do Nível de Preços: Um Teste para a Economia Brasileira no período 1996-2000. Pesquisa e Planejamento Econômico, v. 34, n. 3.

Sargent, T.J., Wallace, N., 1981. Some Unpleasant Monetarist Arithmetic. Federal Reserve Bank of Minneapolis Quarterly Review 5, n. 3, Witter.

Sims, C.A., 1994. A Simple Model for Study of the Price Level and the Interaction of Monetary and Fiscal Policy. Economic Theory, v. 4, p. 381-399.

Sims, C. A., 2005. Limits to Inflation Targeting. Em: BERNANKE, B.S. & WOODFORD, M. (eds.). The Inflation Targeting Debate. Chicago: University of Chicago Press.

Schmitt-Grohe, S., Uribe, M., 2006. Optimal Fiscal and Monetary Policy in a Medium Scale Macroeconomic Model. Em: Gertler, M. & Rogoff, K. (eds.). NBER Macroeconomics Annual 2005. Cambridge: The MIT Press, p. 383-425.

Subacchi, P., 2013. Coordinating the Next Move: Monetary Policy in the Post-crisis World. Think Tank 20: The G-20 and Central Banks in the New World of Unconventional Monetary Policy.

Tanner, E., Ramos, A.M., 2002. Fiscal sustainability and monetary versus fiscal dominance: evidence from Brazil, 1991-2000. IMF Working Paper, n. 02/5.

Walsh, C. E., 2003. Monetary Theory and Policy. Cambridge: The MIT Press.

Woodford, M., 1995. Price Level Determinacy without Control of a Monetary Aggregate. Carnegie- Rochester Conference Series on Public Policy, 43, p. 1-46.

Wyplosz, C., 1999. Economic Policy Coordination in EMU: Strategies and Institutions. Em: Financial supervision and policy coordination in the EMU, Deutsch-Französisches Wirtschaftspolitisches Forum, p. 36-60.



  • There are currently no refbacks.

Copyright (c) 2019 Lívia Carolina Machado Melo

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.



Sponsored by   

ISSN 2037-3643

Reg. Tribunale di Roma n.377/2009 del 19/11/2009