A Cooperative Game Between Fiscal and Monetary Policies

BRAZIL ECONOMICS - Report 03 Oct 2016 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The solution to Brazil’s fiscal crisis requires not only tough measures like approval of the Proposed Constitutional Amendment (PEC) to limit spending in real terms and the social security reform. Without a return of economic growth, there will be no revenue growth or a return to primary surpluses. The return of growth will only happen with expansion of fixed capital investments, which requires lower interest rates. More than ever, Brazil needs a cooperative game between the economic authorities – fiscal and monetary –, with the fiscal authority sending reform initiatives to Congress that will allow cutting the interest rate; and the Central Bank executing an intense monetary easing cycle.

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