Political cycles in Latin America: More evidence on the brazilian economy

Celso J. Costa Junior, Alejandro C. García-Cintado, Manuel A. Hidalgo-Pérez

Research output: Contribution to journalArticlepeer-review

Abstract

This paper aims to shed additional light on the existence of opportunistic and partisan political-business cycles in the Brazilian economy over the 1996-2016 period. To that end, it relies on two different approaches: (I) an Oaxaca model in the spirit of Blinder and Watson (2016); and (II) a DSGE model where fiscal and monetary policies are treated as political-regime dependent (Milani, 2010). By and large, our results from both exercises show that there existed an opportunistic behavior by all the governments studied as regards fiscal policy,and that political ideology played a role in shaping macroeconomic policies in some of the administrations that ran the country within the time span considered. Specifically, as our DSGE exercise illustrates, President Dilma Rouseff’s fiscal management differed significantly from previous governments’. In addition, we do not find any evidence of political business cycle of any type when it comes to monetary policy, in line with what the consensus in this literature states for the case of Brazil.

Original languageEnglish
Article number8
JournalLatin American Economic Review
Volume30
DOIs
StatePublished - 2021
Externally publishedYes

Bibliographical note

Funding Information:
Acknowledgements: We would like to thank, without implicating, the editor, Fausto Hernández, and an anonymous reviewer for valuable and detailed comments that have led to substantial improvements of the original manuscript. We are also grateful to Luis de Araújo, Juan González-Alegre, Alessandro Maravalle, Karlo Marques, Diego Martínez-López, Benedetto Molinari, Daniel Oto-Peralías, Diego Romero-Ávila, and Carlos Usabiaga, for the helpful comments made on an earlier version of this paper. All the remaining errors are our sole responsibility. Financial support by the Spanish Ministry of Science, Innovation and Universities through grant ECO2017-86780-R (AEI/FEDER, UE) and Junta de Andalucía through I+D+i project P20−00808?is?gratefully acknowledged.

Funding Information:
We would like to thank, without implicating, the editor, Fausto Hern?ndez, and an anonymous reviewer for valuable and detailed comments that have led to substantial improvements of the original manuscript. We are also grateful to Luis de Ara?jo, Juan Gonz?lez-Alegre, Alessandro Maravalle, Karlo Marques, Diego Mart?nez-L?pez, Benedetto Molinari, Daniel Oto-Peral?as, Diego Romero-?vila, and Carlos Usabiaga, for the helpful comments made on an earlier version of this paper. All the remaining errors are our sole responsibility. Financial support by the Spanish Ministry of Science, Innovation and Universities through grant ECO2017-86780-R (AEI/FEDER, UE) and Junta de Andaluc?a through I+D+i project P20?00808 is gratefully acknowledged.

Publisher Copyright:
© 2021, Centro de Investigacion y Docencia Economicas A.C. All rights reserved.

Keywords

  • Blinder-Watson decomposition
  • Dynamic Stochastic General Equilibrium (DSGE) model
  • Fiscal policy
  • Monetary policy
  • Political cycles

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