Da inércia à megainflação: o Brasil nos anos 80

Abstract

This paper discusses the acceleration of inflation in Brazil, In the early 1980s, the Brazilian inflation rate increased largely because of the balance-of-payments crisis and because of large depreciations in the cruzeiro. The Cruzado Plan failed to stop inflation because of an extremely loose monetary policy coupled with a lack of fiscal austerity. Repeated price controls have increased the variability of inflation. More recently the decline in tax collections and the growth of interest payments on a ballooning domestic debt have built up a massive focal problem, Flight from money has further aggravated Brazilian inflation. I use two steps to explain the Brazilian inflationary process: the analysis of price freezes in the context of sustained fiscal imbalance; and research on the consequences of different fiscal deficit financing forms. I simulate the paths of inflation and real cash balances in response to different shocks, and I focus on the effects of controls that impose a temporary reduction of the inflation rate under different choices for monetary and fiscal policies. My model of an open economy in which agents can hold money, domestic bonds, and inventories of goods clarifies the linkage between Brazil's growing inability to finance the public sector deficit externally after 1982 and the acceleration of inflation