Active and Passive Fiscal and Monetary Policies: An Analysis Using Brazilian Data

This paper seeks to identify whether fiscal and monetary policies in Brazil were active and/or passive after the inflation targeting regime. To achieve that, we used the Bayesian method to estimate a DSGE model with price rigidity and monopolistic competition, in which the primary surplus and the nominal interest rates are the available economic policy tools. The lack of coordination between these policies in Brazil usually has been identified as the reason for macroeconomic imbalance. Therefore, many authors have pointed out active fiscal policy as a limiting factor for an efficient performance of the monetary policy. However, the analysis of such relations within the framework of DSGE models is still limited, especially in applications to the Brazilian economy. The estimates demonstrated a system where both policies were active during the 2000/1Q-2002/4Q period. On the other hand, in the 2003/1Q-2008/4Q period, fiscal policy exhibited a passive behavior whereas monetary policy was active.