Monetary reform credibility: some evidence for Brazil
DOI:
https://doi.org/10.11606/1980-53572734frKeywords:
credibility, goverment budget constraint, subjective probability, cruzado and collorAbstract
This paper discusses the credibility of two disinflationary reforms adopted in Brazil, the Cruzado and Collor Plans. The source of the credibility problem is assumed to lie in the interaction between the monetary and fiscal authorities established by the government
budget constraint. Credibility is defined as the subjective probability that the government is following the announced policies. The results obtained indicate that both monetary reforms encouraged a policy for the monetary authority that would be appropriate for a Ricardian regime but advocated plans for taxes and expenditures that
could only be feasible under a fiscal dominance regime. Such monetary and fiscal policies are, however, incompatible. It is not feasible to carry out both at the same time, and this explains the overall low credibility, and ultimate failure, of these two economic reforms.
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Atualizado em 14/08/2025