Banking and regional inequality in Brazil: an empirical note

The paper investigates a neglected aspect of regional inequality in Brazil, namely regional inequalities related to financial flows. A synthetic regional financial inequality index is proposed and calculated in a semester basis over the 02-1994/02-2000 period. The inequality measure attempts to capture to what extent deposits in a given state translate into credit operations in that locality. Two main results emerge. First, non-negligible inequality patterns emerge when one considers the segment of private banks and those are consistent with an important proportion of states with a predominantly exporting pattern, for which deposits surpasses loans in that locality. Second, if one focus on the segment of public banks, an opposite pattern appears, that is consistent with decision patterns that might have, in part, a regional development motivation.

A note on inflation targeting and economic growth in Brazil

This paper analyzes the relation between monetary policy and economic performance in Brazil during the period 1999-2006. In particular, it discusses the growth effects of the inflation targeting regime through its effects on aggregate demand. It is argued that monetary policy under IT reacts in a procyclical and asymmetric way to fluctuations in economic activity (too "tight" during recessions, not so "loose" during expansions). Such pattern may generate a downward bias in aggregate demand, with negative real effects on output growth and employment. Our results suggest that monetary policy has been procyclical and asymmetrical in Brazil under inflation targeting. The main economic policy implication of this study is that central banks should consider more seriously the real effects of monetary policy on output and employment.

Exchange rate regulation, the behavior of exchange rates, and macroeconomic stability in Brazil

In the last two decades an entirely new set of rules governing the foreign exchange transactions was established in Brazil, substituting for the framework inherited from the 1930s. Foreign exchange controls were dismantled and a floating exchange rate regime replaced different forms of peg. In this paper we argue that although successful by comparison to previous experiences, the current arrangement has important flaws that should be addressed. We discuss how it first led to high volatility and extremely high interest rates, which, when overcome, gave way to a long lasting appreciation of the real exchange rate with adverse consequences to industry.

Evaluating the wage differential between public and private sectors in Brazil

This paper uses a rotating panel of households to analyze wage differentials between public and private sectors in Brazil. Focusing on the transition of individuals between jobs available in the public and private sectors and controlling for individual time invariant characteristics, we find evidence of small wage differentials in favor of the public sector.

The "hot money" phenomenon in Brazil

Because of its high interest rates, Brazil attracts more and more speculative capital flows, called "hot money", under the form of foreign loans, direct or portfolio investments. Actually, the country is directly involved in a carry-trade strategy that tends to appreciate the real, what penalizes the Brazilian exportations of manufactured products. Moreover, capital inflows are extremely volatile, and their departure, causing a fall in loans granted to the Brazilian private banks, could provoke a dangerous burst of the speculative bubble they have contributed to form in the Brazilian real estate sector.

The industrial equilibrium exchange rate in Brazil: an estimation

This paper presents a methodology for calculating the industrial equilibrium exchange rate, which is defined as the one enabling exporters of state-of-the-art manufactured goods to be competitive abroad. The first section highlights the causes and problems of overvalued exchange rates, particularly the Dutch disease issue, which is neutralized when the exchange rate strikes the industrial equilibrium level. This level is defined by the ratio between the unit labor cost in the country under consideration and in competing countries. Finally, the evolution of this exchange rate in the Brazilian economy is estimated.

Education and development projects in Brazil (1932-2004): political economy perspective

This paper discusses the long-run history of education policies in Brazil. It is suggested that the main reason for the educational backwardness was the existence of strong political interests over education. It is also defended that these interests can be empirically observed in the allocation of public resources between the different levels of education, with political choices favouring specific groups in society. It was not a matter of lack of investment in education, but of inadequate allocation of resources. This pattern of political-based policies created a strong negative path dependence of misallocation of resources in education in Brazil, particularly with significant underinvestment in secondary education.

Assessing development and the idea of development in the 1950s in Brazil

The decade of 1950s was a crucial period of the industrialization of the Brazilian economy. The dominant school of thought was the national-developmentalism, which was not restricted to the sphere of economic production but also encompassed political and socio-cultural processes of change. Combining repression, persuasion and paternalism, the national state took a significantly political and economic responsibility in the social, material and symbolic modernization during the Vargas and Kubitschek administrations. However, internal disputes, foreign demands and a long legacy of socio-spatial inequalities prevented the achievement of more socially inclusive goals, leading a legacy of unanswered questions that still have currency today.

On high interest rates in Brazil

This article examines the question of why interest rates are so high in Brazil as compared to the international average. It looks at theoretical arguments based on excessive government deficits, structural lack of private savings, inflation bias, excessive investment demand and fear of floating. An informal look at the evidence does not strongly corroborate any of these arguments. Hence a wise central bank should consider "testing" the market to make sure it is not dealing with an extreme equilibrium configuration or a long standing disequilibrium.