In this paper we analyze the evolution of Brazilian inflation under the inflation targeting
system from a cost-push perspective. We identify the main features of three quite distinct
phases (1999-2003, 2004-2009 and 2010-2014) and explain them in terms of tradable
price trends in local currency, changes in the dynamics of monitored prices and behavior
of wage inflation. We conclude that the trend towards continuous nominal exchange rate
devaluation after mid-2011, together with the strengthening of the bargaining power of
workers and the trend of rising real wages since 2006, means that distributive conflicts in
Brazil are getting much more intense. We also suggest that the apparently very irrational
recent (early 2015) change in the orientation of economic policy towards contractionary
fiscal, incomes and monetary policies in a stagnating economy seems to be ultimately
based on the desire to weaken the bargaining power of workers that was much
strengthened during the brief but intense Brazilian “golden age” of 2004-2010.
This paper looks in detail at the sharp slowdown in the Brazilian economy for the years 2011-2014,in which economic growth averaged only 2.1 percent annually,as compared with 4.4 percent in the 2004-2010 period. The latter level of growth was also more than double Brazil’s average annual growth rate over the prior 23 years (although it was much lower than the pre-1980 period). It is important to understand why the higher rate of growth experienced from 2004 to 2010 was not
sustained over the past few years.
The authors argue that the slowdown is overwhelmingly the result of a sharp decline in domestic
demand, rather than a fall in exports and even less any change in external financial conditions. The sharp fall in domestic demand, in turn, is shown to be a result of deliberate policy decisions made by the government. This decision to slow the economy was not necessary, i.e., it was not made in response to some external constraint such as a balance-of-payments problem.
This document summarizes a paper about macroeconomic policy, growth, and income distribution in Brazil during the 2000s. The paper analyzes how changes in external conditions and domestic policy contributed to improved economic performance after 2005. It discusses Brazil's inflation targeting system and how the central bank was able to meet inflation targets through exchange rate appreciation. While higher interest rates were meant to reduce demand and inflation, inflation was actually driven by cost factors and import/export prices. The paper examines Brazil's economic growth, reduction in poverty and inequality, challenges around external competitiveness, and proposes some policy alternatives.
Wage growth in the third quarter of 2014 was 7.4% year-over-year, leading to higher private consumption. However, consumption growth of 2.1% was lower than expected given wage increases, possibly due to increased household savings. Inflation in November was 0.9% with falling fuel prices offsetting stable other prices. Manufacturing output grew in October despite external market challenges. Non-financial investment in manufacturing increased 34.1% in the first three quarters, indicating capacity for future production growth.
The Polish economy grew by 3.0% year-over-year in the first quarter of 2010, in line with forecasts. Growth was driven by consumption, inventory restocking, and net exports. However, the economy lost momentum compared to the previous quarter due to a sharp drop in fixed business investment affected by severe winter weather. Unemployment increased in the first quarter but began falling rapidly in April, suggesting recovery is underway in the labor market. Inflation moderated in the first quarter and further in April. The central bank does not expect to change interest rates until 2011. Overall, while the economy experienced a soft patch in the first quarter, growth is expected to accelerate in the second half of 2010.
The purpose of this paper is to show that the interaction between large changes in the external conditions facing the Brazilian economy since 2003 and smaller changes in the orientation of domestic economic policy after 2005 explain the improved control of inflation, the recovery of more satisfactory rates of economic growth and the stronger improvement in income distribution and poverty reduction in the second half of the decade. The change in the orientation of economic policy also explains the relatively moderate contraction and strong recovery of the economy after the world crisis hit Brazil in late 2008.
Brazil towards economic depression and the political and social changeFernando Alcoforado
Brazil is experiencing stagflation, characterized by low economic growth and high inflation. The government has tried stimulating consumption through tax cuts, but this has not increased investment. Inflation remains above targets due to rising production costs. If current economic policies continue, restricting growth and failing to reduce inflation, Brazil risks entering an economic depression with mass unemployment, business failures, and declining production and investment levels. Social unrest may also increase as purchasing power falls and inflation fuels expansion of social movements.
The economy is going through a soft patch.
Unemployment increased due to this and seasonal
factors, but started rapidly falling in April.
Macroeconomic balances mostly improved in
the 1Q10. A lot of slack in the economy helped
inflationary tensions ease in this period and the CPI
inflation rate should remain within the central bank
target band for the next four quarters at least. The
four quarter rolling current account deficit rose
slightly in terms of GDP while the central government
deficit came lower than expected.
"Highlights":
GDP posts moderate growth
Reducing influence on inflation of commodity prices is weakening
Latvian producers demonstrate sustained competitiveness
"In Focus":
Quo vadis, Europe? Latvijas Banka international conference on public debt and QE; autors: Olegs Krasnopjorovs
This paper looks in detail at the sharp slowdown in the Brazilian economy for the years 2011-2014,in which economic growth averaged only 2.1 percent annually,as compared with 4.4 percent in the 2004-2010 period. The latter level of growth was also more than double Brazil’s average annual growth rate over the prior 23 years (although it was much lower than the pre-1980 period). It is important to understand why the higher rate of growth experienced from 2004 to 2010 was not
sustained over the past few years.
The authors argue that the slowdown is overwhelmingly the result of a sharp decline in domestic
demand, rather than a fall in exports and even less any change in external financial conditions. The sharp fall in domestic demand, in turn, is shown to be a result of deliberate policy decisions made by the government. This decision to slow the economy was not necessary, i.e., it was not made in response to some external constraint such as a balance-of-payments problem.
This document summarizes a paper about macroeconomic policy, growth, and income distribution in Brazil during the 2000s. The paper analyzes how changes in external conditions and domestic policy contributed to improved economic performance after 2005. It discusses Brazil's inflation targeting system and how the central bank was able to meet inflation targets through exchange rate appreciation. While higher interest rates were meant to reduce demand and inflation, inflation was actually driven by cost factors and import/export prices. The paper examines Brazil's economic growth, reduction in poverty and inequality, challenges around external competitiveness, and proposes some policy alternatives.
Wage growth in the third quarter of 2014 was 7.4% year-over-year, leading to higher private consumption. However, consumption growth of 2.1% was lower than expected given wage increases, possibly due to increased household savings. Inflation in November was 0.9% with falling fuel prices offsetting stable other prices. Manufacturing output grew in October despite external market challenges. Non-financial investment in manufacturing increased 34.1% in the first three quarters, indicating capacity for future production growth.
The Polish economy grew by 3.0% year-over-year in the first quarter of 2010, in line with forecasts. Growth was driven by consumption, inventory restocking, and net exports. However, the economy lost momentum compared to the previous quarter due to a sharp drop in fixed business investment affected by severe winter weather. Unemployment increased in the first quarter but began falling rapidly in April, suggesting recovery is underway in the labor market. Inflation moderated in the first quarter and further in April. The central bank does not expect to change interest rates until 2011. Overall, while the economy experienced a soft patch in the first quarter, growth is expected to accelerate in the second half of 2010.
The purpose of this paper is to show that the interaction between large changes in the external conditions facing the Brazilian economy since 2003 and smaller changes in the orientation of domestic economic policy after 2005 explain the improved control of inflation, the recovery of more satisfactory rates of economic growth and the stronger improvement in income distribution and poverty reduction in the second half of the decade. The change in the orientation of economic policy also explains the relatively moderate contraction and strong recovery of the economy after the world crisis hit Brazil in late 2008.
Brazil towards economic depression and the political and social changeFernando Alcoforado
Brazil is experiencing stagflation, characterized by low economic growth and high inflation. The government has tried stimulating consumption through tax cuts, but this has not increased investment. Inflation remains above targets due to rising production costs. If current economic policies continue, restricting growth and failing to reduce inflation, Brazil risks entering an economic depression with mass unemployment, business failures, and declining production and investment levels. Social unrest may also increase as purchasing power falls and inflation fuels expansion of social movements.
The economy is going through a soft patch.
Unemployment increased due to this and seasonal
factors, but started rapidly falling in April.
Macroeconomic balances mostly improved in
the 1Q10. A lot of slack in the economy helped
inflationary tensions ease in this period and the CPI
inflation rate should remain within the central bank
target band for the next four quarters at least. The
four quarter rolling current account deficit rose
slightly in terms of GDP while the central government
deficit came lower than expected.
"Highlights":
GDP posts moderate growth
Reducing influence on inflation of commodity prices is weakening
Latvian producers demonstrate sustained competitiveness
"In Focus":
Quo vadis, Europe? Latvijas Banka international conference on public debt and QE; autors: Olegs Krasnopjorovs
Global economic growth remains weak with many forecasts being revised downward. While talk of recession is overdone, growth of around 2.5-3.0% may be the new normal. Government leadership is lacking and central banks have limited policy tools remaining. The US economy has strengthened but China's transition to more sustainable growth has stalled. Monetary policy still has room for easing in some emerging markets.
Inflation is an increase in the aggregate money price level. In 2015, Vietnam has reached its lowest annual Consumer Price Index (“CPI”) in the last decade of 0.63%. This allowed the country to stimulate production and grow well for a short term. However, the inflation needs to increase to 4-5% for a long-term growth. Thus, the government has made some moves to spike up inflation at a control level in 2016. Along with this action, the increase in the world price of oil and the decrease in Vietnam’s food supply have contributed to the rise of inflation during the first five months of 2016. The inflation rate is projected to grow to more than 5% in the end of 2016 and will continuously grow in 2017.
In 2011, the Belarusian ruble lost nearly 2/3 of its value. In December, the inflation rate approached 110% yoy. At the same time, the economy grew by 5.3% that year and continued with 3.6% yoy growth in January 2012. Is this a sign of economic recovery? Will it turn into sustainable growth? Or has the country exited from the crisis at all? To address these questions, CASE Fellow and Director of the IPM Research Centre in Minsk Alexander Chubrik looks at the roots of the 2011 crisis and compares them with the features of the long-lasting period of economic growth in Belarus.
Authored by: Alexander Chubrik
Published in 2012
The document provides an outlook for 2016, summarizing that:
1) China has committed to ensuring 7% growth for the immediate future through government intervention, but rebalancing away from investment is necessary long-term which will slow growth rates.
2) In Europe, GDP growth has accelerated from under 1% to 1.6% since late 2014, supported by ECB monetary easing expanding credit.
3) In the US, growth in construction employment and spending is contributing to a 5% rise in personal consumption and will likely continue supporting the economy in 2016.
This document summarizes a research paper that examines the relationship between trade deficits, foreign direct investment, and economic growth in Rwanda from 2000 to 2015. It finds that trade deficits have a negative long-run impact on economic growth, while foreign direct investment has a positive short-run and long-run impact. The paper uses cointegration and vector error correction models to analyze the data and confirms these relationships statistically. It concludes that Rwanda should continue policies to improve net exports and foreign direct investment to support economic growth.
This document provides an analysis of macroeconomic conditions and portfolio recommendations. It analyzes the national economies of the US, Asia, and Europe, finding overall recovery but some weaknesses. International factors like declining commodity prices and tight financial conditions are noted. The document then assesses industries, provides interest and exchange rate forecasts, evaluates specific securities, and recommends a diversified portfolio allocation and hedging strategies to achieve the target 5.78% return over 5 years for retirement investors.
Az üzemanyagárak emelkedése miatt nagyot ugrott májusban az infláció, de a kereslet-vezérelt tételekben is érzékelhető a gyorsulás. Idén nyáron átmenetileg 3% feletti inflációra számítanak az OTP Bank elemzői. Tartósan 2019-ben érheti el a jegybank célját a pénzromlás üteme, sőt, ha a kockázatok realizálódnak, akár jelentősebb gyorsulás is jöhet jövőre.
Security Analysis Project on Tata Global BeveragesShameem Hamed
The document discusses India's economic performance in 2010-2011. It covers GDP growth, inflation, foreign trade, foreign investments, forex reserves, and corporate sector performance. It then provides an overview of India's FMCG sector, including key categories and companies. The FMCG sector contributed around Rs. 90,000 crores annually and is a major part of the Indian economy and services sector. Major players like HUL, Marico and Nestle have increased market share in key categories.
Standpoint: Global Reflation by Kevin Lings STANLIB
Fears of sustained deflation and stagnant growth in the United States and Europe have been replaced by a more optimistic growth outlook as well as concerns about rising inflation. This has driven developed market equities higher, but also weakened major bond markets.
1) The document analyzes macroeconomic indicators and forecasts for the Polish economy from 2013-2023. It finds that Poland experienced the second fastest economic growth in the EU from 2004-2018 at an average annual rate of 3.92%.
2) Key indicators like GDP, employment, exports, and consumer spending have grown in recent years, but productivity and wages in agriculture remain low compared to other sectors. Further fiscal consolidation is needed to reduce the budget deficit and debt.
3) The economy is projected to remain strong in the short-term, supported by monetary and fiscal policies as well as EU transfers. However, risks include a potential slowdown in the global economy and challenges in reducing unemployment over the long-run
This document summarizes the Reserve Bank of India's 2012-13 Monetary Policy Statement. It discusses the global and domestic macroeconomic environment, providing outlooks for growth, inflation, and monetary aggregates in India. Key points include: moderating global growth concerns, high inflation and slowing growth in India, projections for 7.3% GDP growth and lower inflation in 2012-13, and measures to address high fiscal and current account deficits. The statement covers monetary policy stances and outlines regulatory and developmental policies.
The presentation summarizes Mongolia's economic outlook and key challenges. Deteriorating global economic conditions have negatively impacted Mongolia's growth and external balances. While GDP is forecast to grow 10% in 2012 and 12% in 2013, the current account deficit has increased significantly, putting pressure on the currency. Fiscal policy has also been procyclical, with spending outpacing revenues and increasing the budget deficit. Off-budget spending by state banks is adding to demand pressures and undermining fiscal rules. Inflation remains high, and further commodity price falls would severely impact the economy. Priority must be given to fiscal restraint and reform to contain deficits and debt in order to stabilize the economy amid global uncertainties.
The document provides an overview and outlook of the Singapore residential property market in 2015. It finds that the market will likely remain weak in 2015, with private home prices expected to soften by 4-6% and HDB resale prices by 6-8%, due to three main factors: 1) the government is unlikely to ease property cooling measures as the market correction has not been significant enough; 2) there remains weak demand and massive upcoming supply, which could increase vacancy rates above 10%; and 3) the threat of rising interest rates from an expected US rate hike makes mortgages more expensive and lowers rental returns. The outlook paints a bleak picture for the residential market in 2015.
- Global inflation has been trending downward since 2011 due to factors like technological innovation lowering prices and free trade increasing competition. However, the UK's inflation rate rose in 2016 as the falling pound since the Brexit vote began transmitting higher import prices to consumers.
- While UK inflation is projected to rise to around 2.5-2.75% by 2018-2019 as the pound's depreciation fully feeds through the economy, bond markets expect even higher inflation of 3.1%. Rising inflation could squeeze corporate profit margins and erode bond values as interest rates rise.
- Equity performance in a rising inflation environment depends on the stage of the economic cycle. Moderate inflation and interest rate hikes during growth periods are
Flash Report - Hungarian Inflation - 11 April 2018OTP Bank Ltd.
2%-ra emelkedett az éves bázisú fogyasztói árindex márciusban, azonban továbbra is számos hatás fékezi az árnyomás erősödését. Idén 2% közelében maradhat az infláció, jövőre azonban akár gyors emelkedést is láthatunk, ha az egyszeri tételek hatása kifut.
This document summarizes key economic indicators in the United States from 2005 to 2015. It discusses components of GDP like consumption, investment, government spending and net exports. It also analyzes unemployment rates, inflation, oil prices and consumer confidence. The economy recovered from the Great Recession, with GDP and consumption increasing steadily in recent years. However, inflation remains low and unemployment higher than pre-recession levels, suggesting more room for improvement. Falling oil prices could boost growth but also pose deflation risks if price declines continue.
Latvijas Banka Monthly Newsletter
Content:
"Highlights":
- Export growth resists adverse external environment
- Money indicators develop favourably
- Economic sentiment tends to improve
"In Focus":
"Allocation of resources in Latvia improved after the crisis" by Konstantīns Beņkovskis
Bank lending in Latvia increased in August, with business loans growing 0.8% month-over-month. Total bank loans expanded by 0.2% while decreasing annually by 6.6%. GDP grew by 0.9% quarter-over-quarter and 2.3% year-over-year in Q2, driven by private consumption and increases in investment, exports, and imports. Inflation was 1.0% in September.
The document is a series of 10 photos credited to Angus McDiarmid. It does not contain any other text, but invites the reader to be inspired to create their own Haiku Deck presentation on SlideShare.
Recientemente, una serie de trabajos han formulado las críticas a las hipótesis
principales en que se apoya el denominado “nuevo consenso macroeconómico”.2 A su
vez, estas críticas se han extendido al caso de una economía abierta.3 Estas críticas no
se ha limitado a poner de relieve lo que es incorrecto en la visión teórica del nuevo
consenso, sino que además apuntó a sustituir sus hipótesis principales por otras
(consideradas teóricamente más sólidas y a su vez empíricamente relevantes) con el
fin de analizar sobre el cambio en los resultados obtenidos.
En este punto, es conveniente distinguir entre el arreglo institucional que sintetiza la
aplicación de un conjunto de política focalizadas en la inflación, por un lado, del modo
en que la teoría convencional intenta explicar cómo el régimen de inflation targeting
efectivamente funciona.4 El objetivo de este trabajo es sintetizar algunos de los puntos
principales de estas visiones críticas con el fin de realizar un análisis específico del
reciente intento de transición hacia un régimen de metas de inflación en Argentina. El
análisis estará focalizado principalmente en la dinámica de la inflación y solo
complementariamente en los determinantes del crecimiento.
Para tal fin, en la sección segunda se expondrán los rasgos principales del modelo de
nuevo consenso así como sus críticas principales, y el cambio de sus hipótesis básicas.
En la sección 3 se realizará un breve análisis de la inflación argentina entre 2002 y
2015, La sección 4 finaliza discutiendo los eventuales resultados, así como los dilemas
y problemas principales que podría enfrentar la aplicación de las metas de inflación al
caso argentino.
Global economic growth remains weak with many forecasts being revised downward. While talk of recession is overdone, growth of around 2.5-3.0% may be the new normal. Government leadership is lacking and central banks have limited policy tools remaining. The US economy has strengthened but China's transition to more sustainable growth has stalled. Monetary policy still has room for easing in some emerging markets.
Inflation is an increase in the aggregate money price level. In 2015, Vietnam has reached its lowest annual Consumer Price Index (“CPI”) in the last decade of 0.63%. This allowed the country to stimulate production and grow well for a short term. However, the inflation needs to increase to 4-5% for a long-term growth. Thus, the government has made some moves to spike up inflation at a control level in 2016. Along with this action, the increase in the world price of oil and the decrease in Vietnam’s food supply have contributed to the rise of inflation during the first five months of 2016. The inflation rate is projected to grow to more than 5% in the end of 2016 and will continuously grow in 2017.
In 2011, the Belarusian ruble lost nearly 2/3 of its value. In December, the inflation rate approached 110% yoy. At the same time, the economy grew by 5.3% that year and continued with 3.6% yoy growth in January 2012. Is this a sign of economic recovery? Will it turn into sustainable growth? Or has the country exited from the crisis at all? To address these questions, CASE Fellow and Director of the IPM Research Centre in Minsk Alexander Chubrik looks at the roots of the 2011 crisis and compares them with the features of the long-lasting period of economic growth in Belarus.
Authored by: Alexander Chubrik
Published in 2012
The document provides an outlook for 2016, summarizing that:
1) China has committed to ensuring 7% growth for the immediate future through government intervention, but rebalancing away from investment is necessary long-term which will slow growth rates.
2) In Europe, GDP growth has accelerated from under 1% to 1.6% since late 2014, supported by ECB monetary easing expanding credit.
3) In the US, growth in construction employment and spending is contributing to a 5% rise in personal consumption and will likely continue supporting the economy in 2016.
This document summarizes a research paper that examines the relationship between trade deficits, foreign direct investment, and economic growth in Rwanda from 2000 to 2015. It finds that trade deficits have a negative long-run impact on economic growth, while foreign direct investment has a positive short-run and long-run impact. The paper uses cointegration and vector error correction models to analyze the data and confirms these relationships statistically. It concludes that Rwanda should continue policies to improve net exports and foreign direct investment to support economic growth.
This document provides an analysis of macroeconomic conditions and portfolio recommendations. It analyzes the national economies of the US, Asia, and Europe, finding overall recovery but some weaknesses. International factors like declining commodity prices and tight financial conditions are noted. The document then assesses industries, provides interest and exchange rate forecasts, evaluates specific securities, and recommends a diversified portfolio allocation and hedging strategies to achieve the target 5.78% return over 5 years for retirement investors.
Az üzemanyagárak emelkedése miatt nagyot ugrott májusban az infláció, de a kereslet-vezérelt tételekben is érzékelhető a gyorsulás. Idén nyáron átmenetileg 3% feletti inflációra számítanak az OTP Bank elemzői. Tartósan 2019-ben érheti el a jegybank célját a pénzromlás üteme, sőt, ha a kockázatok realizálódnak, akár jelentősebb gyorsulás is jöhet jövőre.
Security Analysis Project on Tata Global BeveragesShameem Hamed
The document discusses India's economic performance in 2010-2011. It covers GDP growth, inflation, foreign trade, foreign investments, forex reserves, and corporate sector performance. It then provides an overview of India's FMCG sector, including key categories and companies. The FMCG sector contributed around Rs. 90,000 crores annually and is a major part of the Indian economy and services sector. Major players like HUL, Marico and Nestle have increased market share in key categories.
Standpoint: Global Reflation by Kevin Lings STANLIB
Fears of sustained deflation and stagnant growth in the United States and Europe have been replaced by a more optimistic growth outlook as well as concerns about rising inflation. This has driven developed market equities higher, but also weakened major bond markets.
1) The document analyzes macroeconomic indicators and forecasts for the Polish economy from 2013-2023. It finds that Poland experienced the second fastest economic growth in the EU from 2004-2018 at an average annual rate of 3.92%.
2) Key indicators like GDP, employment, exports, and consumer spending have grown in recent years, but productivity and wages in agriculture remain low compared to other sectors. Further fiscal consolidation is needed to reduce the budget deficit and debt.
3) The economy is projected to remain strong in the short-term, supported by monetary and fiscal policies as well as EU transfers. However, risks include a potential slowdown in the global economy and challenges in reducing unemployment over the long-run
This document summarizes the Reserve Bank of India's 2012-13 Monetary Policy Statement. It discusses the global and domestic macroeconomic environment, providing outlooks for growth, inflation, and monetary aggregates in India. Key points include: moderating global growth concerns, high inflation and slowing growth in India, projections for 7.3% GDP growth and lower inflation in 2012-13, and measures to address high fiscal and current account deficits. The statement covers monetary policy stances and outlines regulatory and developmental policies.
The presentation summarizes Mongolia's economic outlook and key challenges. Deteriorating global economic conditions have negatively impacted Mongolia's growth and external balances. While GDP is forecast to grow 10% in 2012 and 12% in 2013, the current account deficit has increased significantly, putting pressure on the currency. Fiscal policy has also been procyclical, with spending outpacing revenues and increasing the budget deficit. Off-budget spending by state banks is adding to demand pressures and undermining fiscal rules. Inflation remains high, and further commodity price falls would severely impact the economy. Priority must be given to fiscal restraint and reform to contain deficits and debt in order to stabilize the economy amid global uncertainties.
The document provides an overview and outlook of the Singapore residential property market in 2015. It finds that the market will likely remain weak in 2015, with private home prices expected to soften by 4-6% and HDB resale prices by 6-8%, due to three main factors: 1) the government is unlikely to ease property cooling measures as the market correction has not been significant enough; 2) there remains weak demand and massive upcoming supply, which could increase vacancy rates above 10%; and 3) the threat of rising interest rates from an expected US rate hike makes mortgages more expensive and lowers rental returns. The outlook paints a bleak picture for the residential market in 2015.
- Global inflation has been trending downward since 2011 due to factors like technological innovation lowering prices and free trade increasing competition. However, the UK's inflation rate rose in 2016 as the falling pound since the Brexit vote began transmitting higher import prices to consumers.
- While UK inflation is projected to rise to around 2.5-2.75% by 2018-2019 as the pound's depreciation fully feeds through the economy, bond markets expect even higher inflation of 3.1%. Rising inflation could squeeze corporate profit margins and erode bond values as interest rates rise.
- Equity performance in a rising inflation environment depends on the stage of the economic cycle. Moderate inflation and interest rate hikes during growth periods are
Flash Report - Hungarian Inflation - 11 April 2018OTP Bank Ltd.
2%-ra emelkedett az éves bázisú fogyasztói árindex márciusban, azonban továbbra is számos hatás fékezi az árnyomás erősödését. Idén 2% közelében maradhat az infláció, jövőre azonban akár gyors emelkedést is láthatunk, ha az egyszeri tételek hatása kifut.
This document summarizes key economic indicators in the United States from 2005 to 2015. It discusses components of GDP like consumption, investment, government spending and net exports. It also analyzes unemployment rates, inflation, oil prices and consumer confidence. The economy recovered from the Great Recession, with GDP and consumption increasing steadily in recent years. However, inflation remains low and unemployment higher than pre-recession levels, suggesting more room for improvement. Falling oil prices could boost growth but also pose deflation risks if price declines continue.
Latvijas Banka Monthly Newsletter
Content:
"Highlights":
- Export growth resists adverse external environment
- Money indicators develop favourably
- Economic sentiment tends to improve
"In Focus":
"Allocation of resources in Latvia improved after the crisis" by Konstantīns Beņkovskis
Bank lending in Latvia increased in August, with business loans growing 0.8% month-over-month. Total bank loans expanded by 0.2% while decreasing annually by 6.6%. GDP grew by 0.9% quarter-over-quarter and 2.3% year-over-year in Q2, driven by private consumption and increases in investment, exports, and imports. Inflation was 1.0% in September.
The document is a series of 10 photos credited to Angus McDiarmid. It does not contain any other text, but invites the reader to be inspired to create their own Haiku Deck presentation on SlideShare.
Recientemente, una serie de trabajos han formulado las críticas a las hipótesis
principales en que se apoya el denominado “nuevo consenso macroeconómico”.2 A su
vez, estas críticas se han extendido al caso de una economía abierta.3 Estas críticas no
se ha limitado a poner de relieve lo que es incorrecto en la visión teórica del nuevo
consenso, sino que además apuntó a sustituir sus hipótesis principales por otras
(consideradas teóricamente más sólidas y a su vez empíricamente relevantes) con el
fin de analizar sobre el cambio en los resultados obtenidos.
En este punto, es conveniente distinguir entre el arreglo institucional que sintetiza la
aplicación de un conjunto de política focalizadas en la inflación, por un lado, del modo
en que la teoría convencional intenta explicar cómo el régimen de inflation targeting
efectivamente funciona.4 El objetivo de este trabajo es sintetizar algunos de los puntos
principales de estas visiones críticas con el fin de realizar un análisis específico del
reciente intento de transición hacia un régimen de metas de inflación en Argentina. El
análisis estará focalizado principalmente en la dinámica de la inflación y solo
complementariamente en los determinantes del crecimiento.
Para tal fin, en la sección segunda se expondrán los rasgos principales del modelo de
nuevo consenso así como sus críticas principales, y el cambio de sus hipótesis básicas.
En la sección 3 se realizará un breve análisis de la inflación argentina entre 2002 y
2015, La sección 4 finaliza discutiendo los eventuales resultados, así como los dilemas
y problemas principales que podría enfrentar la aplicación de las metas de inflación al
caso argentino.
The objective of this paper is to deepen the understanding of Adam Smith's theory of distribution
and by doing so to unveil his adherence to the hypothesis of a given social product and technique in
use determined by labor productivity and past accumulation of capital when determining short term
fluctuations of the distributive shares and when discussing taxation. The paper can be directly
linked to Sraffa's 1951 and 1960 proposition of the existence of a classical approach to value and
distribution fundamentally different from posterior marginalist analysis. In the paper I refute the
existence in “An Inquiry into the Nature and Causes of the Wealth of Nations” (henceforth “WN”)
of an “additive theory of value”, a proposition clearly advanced by Marx and shared by many
economists, including Sraffa. According to this interpretation, Smith neglected the implications of a
given social product and technique in use as a binding constraint to the distributive shares when
determining the natural prices of commodities. Starting in the nineties, some of Sraffa's followers
began to question the “adding up” interpretation by identifying a theory of distribution compatible
with the hypothesis of a given social product in Smith's narrative. This paper is part of this ongoing
effort and it shows that the key to understand Smith's theory of distribution lies in the correct
identification of the rent of land as a residually determined distributive share and of real wages
determined exclusively in terms of the most common agricultural produce of the country. As a
consequence, the rent of land is determined independently of relative prices while wages and profits
are allowed a degree of liberty in their relative movements, the acknowledgment of which dissolves
the perceived incompatibility of various passages of “WN” – specially the ones concerning the
competition of capitals – with the hypothesis of a given social product and technique in use biding
distribution, while completely denying the independent determination of the distributive shares. It is
also shown that the residual determination of land rent demands the exogenous determination of
profits to reach a definite solution as to how profits and land rents share the surplus. Smith's
“competition of capitals” cannot be interpreted then as a failure to see the biding constraint of
distribution, nor it can be used as an evidence of the “additive theory of value” interpretation.
Therefore, once the residual land rent and the “agricultural” real wage are identified, Smith can be
unambiguously included as belonging to the surplus approach to value and distribution. This paper
contains eight sections: 1) Introduction; 2) Smith's theory of distribution and value; 3) Wages;
4)Profits; 5) Rent of Land; 6) Distribution and relative prices; 7) Manifestations of Smith theory of
distribution and value: bounties and taxes; and 8) Conclusion.
This document provides an overview of key concepts in tourism. It discusses different types of tourism like leisure, business, and visiting friends and relatives. It also examines the integrated model of tourism which shows how travelers interact with tourism promoters, suppliers, and the external environment. Some factors that influence tourism development are discussed like social trends, political policies, the economy, culture/environment, and technology.
O artigo analisa a rápida desaceleração da economia brasileira para os anos de 2011-2014, no qual esta cresceu apenas 2,1% em média anual, em comparação a média de crescimento de 4,4% do
período 2004-2010. O crescimento do período 2004-2010 foi mais do que o dobro da média anual
dos 23 anos anteriores. Dessa forma, é importante entender por que essa maior taxa de crescimento – embora bastante menor que a do período anterior a década de 80 – não se sustentou nos últimos 4 anos.
La Web 3.0 se refiere a la evolución de Internet hacia una red de datos accesible desde cualquier dispositivo, que utiliza tecnologías como la inteligencia artificial y la web semántica. Esto permitirá que la información sea más comprensible y útil para los usuarios. Algunas innovaciones clave son el uso de programas inteligentes que analizan datos semánticos de forma eficiente.
Data Science Transforming Security OperationsPriyanka Aash
Data science can transform security operations by being applied across the entire process, beyond just prevention and detection. It can enhance detection through advanced analytics, augment investigations by aggregating alerts and prioritizing threats, improve continuously through feedback loops, enable intelligence sharing, and inform automated responses. Organizations should assess their data science maturity and focus on integrating it throughout their security operations rather than treating it as an isolated feature. Building an in-house data science practice requires alignment, strategic staffing, and a long-term commitment to maximize the benefits.
Transforming cloud security into an advantageMoshe Ferber
- Moshe Ferber is an experienced information security professional who has founded and invested in several cloud security companies.
- The document discusses important concepts in cloud security including creating trust between cloud providers and customers, security best practices in development and operations, and compliance with standards and regulations.
- Key responsibilities in cloud security include securing data, applications, users and identities across the entire lifecycle from a shared responsibility model between providers and customers.
The document discusses the National Rural Employment Guarantee Act (NREGA) of India, including its objectives, features, implementation, effectiveness, and state-wise performance. Some key points are: NREGA aims to provide 100 days of employment to rural households willing to do unskilled manual work. It guarantees employment within 15 days of application. Over 144 crore person-days of employment have been provided to 34 million households. However, implementation has faced issues like delays in wage payments and lack of measuring asset creation. States like Rajasthan, Madhya Pradesh and Chhattisgarh have performed well, while some others lag behind in women's participation and other metrics.
This document discusses Universal Grammar (UG) and its role in second language acquisition. UG proposes that the human brain is hardwired with innate, universal principles of grammar. It suggests that children learn the rules of their native language quickly because their brain contains a Language Acquisition Device that allows them to map the principles of UG onto the parameters of the specific language. The document outlines the history and key concepts of UG, including poverty of stimulus, constraints on learning, and universal developmental patterns. It also discusses related concepts like principles and parameters, and Chomsky's Minimalist Program. Researchers have studied whether and how second language learners may access the principles of UG.
In a recessionary and deflationary framework, the discretionary monetary policy cannot be optimal when the interest rate is already near zero and cannot decrease anymore. Indeed, when the Zero Lower Bound is binding, a negative demand shock implies a decrease in the current economic activity level and deflationary tensions, which cannot be avoided by monetary policy as the nominal interest rate can no longer decrease. The economic literature has then often recommended to target an inflation rate sufficiently above zero in order to avoid the dangers of this Zero Lower Bound (ZLB) constraint. On the contrary, provided the ZLB is not binding, monetary policy can efficiently contribute to the stabilization of economic activity and inflation in case of demand shocks. The variation in interest rates is then all the more accentuated as interest rate smoothing is a more negligible goal for the central bank. The contribution of our paper is to provide a clear analytical New-Keynesian framework sustaining these results. Besides, our analytical modelling also shows that even if the ZLB is currently not binding, the central bank should take into account the dangers of a potential future binding ZLB. Indeed, the interest rate should be decreased the fastest as a negative demand shock and the possibility to reach the ZLB is anticipated for a nearest future period. Our paper demonstrates the necessity of such a ‘pre-emptive’ active monetary policy even in a discretionary framework, which has the advantage to be time-consistent and to be in conformity with the empirical practices of independent central banks. We don’t have to make the strong hypothesis of a commitment monetary policy intended to affect private agents’ expectations in order to demonstrate the optimality of such a pre-emptive monetary policy.
Is fiscal policy effective in Brazil? An empirical analysisFGV Brazil
This document analyzes the effectiveness of fiscal policy in Brazil using empirical analysis from 1997 to 2014. It estimates fiscal multipliers using structural VAR and TVAR models to identify the impact of fiscal stimuli on output. The most robust estimate of the government spending multiplier is approximately 0.5. Higher multipliers are found using other approaches but may be biased. No significant response of output to tax changes was found, but output appears to generate tax revenue. The high level of government spending in Brazil may undermine the importance of fiscal shocks and help explain the country's fiscal conundrum.
The Brazilian economy grew by 4.2 percent annually from 2004-2010, more than double its annual growth from 1999-2003 or indeed its growth rate over the prior quarter century. This growth was accompanied by a significant reduction in poverty and extreme poverty, especially after 2005, as well as reduced inequality. This paper looks at the combination of external changes and changes in macroeconomic policy that contributed to these results.
The overall policy framework since 1999 has consisted of a “tripod” of explicit inflation targets, a (very “dirty”) floating exchange rate regime, and specific (and quite large) targets for the primary budget surplus. The Brazilian inflation-targeting system requires that the monetary authority pursue a single objective, the control of inflation, which must remain inside a pre-defined range within a calendar year. Although the inflation target was not achieved in the years 2001 to 2003, since 2004 the government was successful in keeping inflation within the target range every single year, even in the turbulent year of 2008.
This paper shows that the Central Bank was able to meet its inflation target after 2004 through a continual appreciation of the exchange rate. It is argued by the Brazilian monetary authorities, and commonly believed in media and policy circles, that inflation is driven by changes in aggregate demand. The commonly accepted story is that when the Central Bank raises policy interest rates, it causes a reduction in aggregate demand and therefore lowers inflation. However, as the authors demonstrate, inflation in Brazil is driven by cost-push pressures and not by changes in aggregate demand; and so it is the reduction in import and export prices, due to appreciation of the Brazilian Real, that has allowed Brazil to maintain its inflation target during these years. When the Central Bank raises policy rates, this attracts capital inflows, thus appreciating the currency and reducing inflation by reducing import and export prices. Therefore, the Brazilian inflation-targeting system, in which the interest rate is used to control inflation, actually works directly through the exchange-rate cost channel.
There was more policy space for Brazil after 2003 because of more favorable external conditions. The improved current account, and the resumption of large capital inflows allowed the government to quickly repay in full – and get rid of – IMF loans and conditionalities in late 2005, reduce the overall external debt, and accumulate a massive amount of reserves. The ratio of short-term external debt to foreign exchange reserves, which had reached more than 90% on the eve of the 1999 exchange-rate crisis, fell to about 20% by 2008.
Brazil’s expansion was initially led by a boom in exports and GDP growth was not very fast; but from 2006 on, export growth lost steam and the internal market began to grow faster, thanks to a more expansionary macroeconomic policy. This was especia
The document discusses inflation dynamics and monetary policy. It provides a historical review of inflation in the US since the 1960s, noting that inflation is now much more stable and running at a very low level compared to the past. It reviews the costs of inflation and why the Federal Reserve aims to keep it close to 2%. The document then discusses the Federal Reserve's policy actions since the financial crisis and inflation dynamics and their implications for the outlook and monetary policy.
Macroeconomic stability in the DRC: highlighting the role of exchange rate an...IJRTEMJOURNAL
This study is part of a macroeconomic approach and seeks to identify the role of the rate of
economic growth and the exchange rate in controlling the macroeconomic framework. The approaches adopted
in this paper are part of Keynesian thinking on macroeconomic stability using the macroeconomic stability
index proposed by Burnside and Dollars (2004) and A. Amine (2005). Our results argue that economic growth
is causing macroeconomic stability and that the exchange rate is negatively and significantly accounting for
macroeconomic stability in the Democratic Republic of Congo.
Much of the population is totally misinformed on the issue of the exchange rate as an economic policy instrument. This is an issue that people think it's not important unless when they decide to travel abroad. People need to understand that the exchange rate is a key factor of a national development project given that it interferes favorably or unfavorably on the competitiveness of exports and expenditure on imports, in forward or reverse of the domestic industry, the rise or fall of inflation rates, the increase or decrease of the country's production costs and the rise or fall of international reserves, among other factors. A stable exchange rate can lead to a prolonged period of economic growth, while an unstable exchange rate is able to reverse any growth process as what is currently happening in Brazil.
Inflation in Sri Lanka has been volatile over the past decade. It peaked at 22.6% in 2008 due to high commodity prices and money supply growth, but declined to 3.56% in 2009 as monetary policy tightened and prices fell. Inflation then gradually increased until 2012, and decreased to 6.94% in 2013. Maintaining price stability is a key objective of Sri Lanka's central bank, as high and unpredictable inflation can negatively impact the economy by redistributing wealth, lowering real incomes, and increasing borrowing costs. The document discusses inflation measurement, trends, and causes in Sri Lanka from 2008 to the present.
Government budget control under the period of inflation: Evidence from Madaga...iosrjce
Madagascar is rich in resource undermine, maritime and natural but have been experiencing
Inflation now for more than four decades. Many studies and papers talk about the relationship between Inflation
and Budget Deficit. This paper seeks to test the hypothesis that budget control explicated by the budget deficit
cause inflation in Madagascar with some variable economically affect the inflation such as Gross Domestic
Product, exchange rate, Money supply, budget deficits and political crises that is during a thirty-three years
period: from 1981to 2014. The methodology employed for estimating long-run relationship is Augmented Ducky
Fuller test for a stationary data then cointegration analysis, with undertaking Granger causality tests. The
findings of the study are Malagasy Budget control is not inflationary and the inflation didn’t explain the budget
control. But the variable that cause the inflation in Madagascar are the Political Crises and Money Supply
Why Macroeconomic Structural and Wage-Price Indicators are Puzzling the Polic...Economic Policy Dialogue
This commentary tries to answer the puzzling questions – why there is a disconnect between inflation and unemployment, unemployment rate and wage rate, monetary policy rate stance and real economy, economic buoyancy and price-wage indicators; and also, why the neutral interest rate and the natural unemployment rate are declining. It points out that the official data do not represent the structural realities of the economy. As the official measurements have been deviating more from the social and economic facts, the economic indicators have tended to become less predictable and applicable.
Question 1Response 1Development inside and out effects t.docxaudeleypearl
Question 1:
Response 1:
Development inside and out effects the entire country's economy. It impacts the managing body, regardless the clearly irrelevant subtleties in the average person's dependably life. Both a conditions and clear deferred results of how the economy is getting along, swelling has the two its fans and spoilers. Distinctive envisions that particular degrees of swelling are helpful for a prospering economy, yet that progressively critical rates raise concerns. It can degrade the money basically and, at logically lamentable, has been a key part to subsidences.
Swelling, as referenced, is the rate a worth ascensions, and fundamentally how much the dollar is worth at a given moment concerning checking. The idea behind swelling being an impact for good in the economy is that a reasonable enough rate can nudge financial movement without debasing the money so much that it ends up being basically vain (Kohn, 2006).
Swelling can in like manner falter from asset for asset. Subordinate upon the season, the expense of gas could go up independently from with everything considered headway as it routinely does as summer moves close. In reality, there is even a term - focus improvement - for swelling that parts in everything except for sustenance and imperativeness (gas and oil), as these regions have separate factors that add to them. There are a wide degree of sorts of swelling, subordinate upon what remarkable is being viewed comparatively as what the development rate truly is by all accounts. For example, what happens if the swelling rate is well over the Fed's normal goal? At a higher rate, yet still in the single digits, that is known as walking swelling. It is seen as concerning yet sensible (Ball, 2006).
Swelling is generally depicted reliant on its rate and causes. By and large, Inflation happens in an economy when vitality for thing and experiences outmaneuvers the supply of yield. in this manner, clarifications behind Inflation have different sides, the intrigue side and supply side. The widely inclusive activity of hazard premiums in driving enlargement pay over the scope of advancing years is dependable with secured budgetary improvement and inside and out oblige cash related procedure events in the moved economies. The degree for further fitting budgetary enabling seen with money related stars seems to have declined amidst the enough low advance charges and gigantic monetary records of national banks (Bodie, 2016).
In relentless time, the correspondence of perils has wound up being constantly phenomenal, the general point of view has lit up, and money related conditions have engaged on net. With the work superstar proceeding to reinforce, and GDP improvement expected to keep up a vital good ways from back in the consequent quarter, it likely will be fitting soon to change the affiliation supports rate. Likewise, if the economy propels as shown by the SEP concentrate way, the affiliation supports rate will probably app ...
This document analyzes the relationship between inflation and economic growth in Bangladesh from 1980 to 2014. It finds that inflation has negatively impacted growth when inflation rates are very high, such as over 20%. However, moderate inflation rates between 3-8% appear correlated with higher economic growth of around 5-6%. The relationship between inflation and growth is non-linear, with inflation potentially stimulating growth up to a certain threshold, after which high inflation hinders growth. Understanding this relationship is important for Bangladesh's central bank in conducting monetary policy.
Foreign Exchange Intervention and Currency Crisis (The Case of Korea During P...K Developedia
Title: Foreign exchange intervention and currency crisis
Sub Title: The case of Korea during pre-crisis period
Material Type: Report
Author: Kang, Sung-Kyung
Publisher: KDI School of Public Policy and Management
Date: 2000
Pages: 69
Subject Country: South Korea (Asia and Pacific)
Language: English
File Type: Documents
Original Format: pdf
Subject: Economy; Macroeconomics
Holding: KDI School of Public Policy and Management
This document discusses key concepts in managerial economics including business cycles, monetary policy, and costs. It provides the following information:
1) It describes the four phases of a typical business cycle: contraction, trough, expansion, and peak. The National Bureau of Economic Research determines the business cycle stages by analyzing economic indicators like GDP growth.
2) It defines monetary policy as the measures taken by central banks to manage money supply, interest rates, and credit conditions to achieve economic objectives. Common monetary policy tools include reserve requirements, interest rates, and open market operations.
3) It explains the difference between implicit costs (opportunity costs of using own resources) and explicit costs (direct payments) as well as
This document discusses inflation in Bangladesh over several chapters:
1. It provides background on inflation, defining it as a sustained increase in general price levels. The main causes are seen as demand-pull (too much money chasing too few goods) and cost-push (increased costs passed on to consumers).
2. Inflation in Bangladesh has recently increased, prompting the central bank to tighten monetary policy. However, inflation is also driven by non-economic factors like profiteering and lack of price monitoring.
3. Charts show Bangladesh's inflation rate averaged 6.65% from 1994-2016, reaching a high of 16% in 2011 and low of -0.03% in 1996,
This is a study attempting to statistically measure the impact of Government policies on the economy and the stock market. The “causal” Government policies considered will include:
Fiscal Policy, entailing Budget Deficit spending;
Monetary Policy with the Federal Reserve managing the Federal Funds rate; and
Monetary Policy with the Federal Reserve conducting large purchases of securities (Treasuries, MBS);
The dependent or impacted macroeconomic variables affected by the above Government policies will include:
The overall economy (RGDP);
Inflation (CPI);
Unemployment Rate; and
Stock market.
This document summarizes an analysis of economic growth patterns in Brazil between 1970 and 2006. It finds that Brazil experienced high growth rates from the 1950s through the 1980s, but then saw a substantial decline in growth. The decline was caused by both low domestic demand growth and unstable, inconsistent contributions from the external sector. Fundamental causes included changes in commercial and financial external engagement, worsening income distribution, and macroeconomic policy regimes from 1999 onward.
Application of taylor principle to lending rate pass through debate in nigeri...Alexander Decker
This document summarizes research on the pass-through of policy interest rates to retail lending rates in Nigeria. It finds that pass-through is incomplete, which contradicts the Taylor principle and implications for monetary policy effectiveness. The paper also reviews literature showing that retail rates typically do not fully adjust to changes in policy rates due to factors like bank-customer relationships and asymmetric information. An incomplete pass-through can interfere with the stabilizing role of monetary policy and alter macroeconomic stability.
The Causal Analysis of the Relationship between Inflation and Output Gap in T...inventionjournals
The purpose of the paper is to study dynamic relationships between the inflation and output gap by using Granger causality, Impulse response and variance decompositions analysis within VECM framework for the quarterly data over the first period of 2003 and second period of 2016. The results of the study indicate that the output gap Granger cause the inflation in Turkey both in short-and long-runs. Also, sign of the causality is negative and same causal relationships between two variables hold beyond the sample period. The results should be taken as an evidence of the conclusion that the output gap has important implications for the CBRT's monetary policy.
The document provides information about managerial economics assignments for semester 1. It includes questions and answers on topics such as:
1. Describing the different phases of the business cycle including contraction, trough, expansion, and peak.
2. Explaining monetary policy objectives and instruments, including changes to reserve ratios, interest rates, exchange rates, and open market operations.
3. Calculating the price elasticity of supply using data about pen production and prices.
4. Defining implicit costs as opportunity costs of using self-owned factors, and explicit costs as direct payments, and also defining actual and opportunity costs.
This document contains an assignment on managerial economics from Semester 1 of an MBA program. It includes questions and answers on topics such as:
1. Describing the different phases of a business cycle including contraction, trough, expansion, and peak.
2. Explaining the objectives, instruments, and relationship with other economic policies of monetary policy.
3. Calculating the price elasticity of supply using data provided in a question.
4. Providing brief descriptions of implicit vs explicit costs and actual vs opportunity costs.
5. Explaining the relationship between total revenue, average revenue, and marginal revenue under different market conditions.
Similar to Summa serrano (1 oct 2015) distribution and cost push inflation in brazil under inflation targeting, 1999-2014 (20)
Atualmente, diversos economistas das mais variadas origens e tendências argumentam que o Banco Central deve imprimir dinheiro para financiar o déficit público e zerar a taxa básica de juros para fazer políticas monetárias não convencionais, chamadas lá fora de Quantitative Easing (QE) e que consistem na compra de ativos privados e talvez até divida pública de prazos mais longos.
1) O artigo discute a evolução do conceito de Lei de Say no pensamento econômico, desde a versão original de Jean Baptiste Say até as interpretações clássicas, neoclássicas e da escola de Cambridge.
2) A versão original de Say tratava da identidade entre produção e consumo, onde toda produção gera demanda equivalente através dos salários pagos e do poder de compra gerado. Isso pressupunha a neutralidade da moeda e ausência de entesouramento.
3) Posteriormente, interpretações cl
The purpose of this paper is to contribute to an interpretation of Ricardo’s theory of foreign trade following the lead of Sraffa ́s own 1930 critique of Ricardo ́s alleged error and recently developed by other Sraffians. We argue that Ricardo assumed that trade happened at natural prices in each country. And once we take the process of gravitation towards those prices into account it follows that : (i) Ricardo’s theory is not incomplete, but fully determined so there is no need for price elastic demand functions, contrary to what John Stuart Mill argued; and (ii) in the simple cases of the examples of chapter 7 of Ricardo ́s Principles, the terms of trade are determined by the ratio of the given actually traded levels of reciprocal effectual demands.
Taking into account the pull-push debate on the weight that external or internal factors have on the behavior of capital flows and country-risk premium of developing economies, the aim of this article is to assess empirically the extent by which the push factors, linked to global liquidity and interest rates, (compared to country-specific factors) play on the changes in the risk premium of a set of countries of the periphery, in the period 1999-2019. This done using the methodology of Principal Component Analysis, which can relate the information from different countries to its common sources. We also test for a structural change in the premium risk series in 2003, by means of structural break tests. We find that push factors do play the predominant role in explaining country risk changes of our selected peripherical countries and that there was indeed a substantial general reduction in country risk premia after 2003, confirming that the external constraints of the periphery were significantly loosened by more favorable conditions in the international economy in the more recent period. The results are in line both with the view that cycles in peripherical economies are broadly subordinated to global financial cycles, in but also that such external conditions substantially improved compared to the 1990s.
This document analyzes Brazilian National Treasury primary auctions from the 2000s using a Modern Monetary Theory interpretation. It finds that:
1) The Brazilian government was always able to sell its treasury bonds and was not pressured into higher interest rates by bond markets or rating downgrades.
2) Downgrades by international rating agencies did not cause persistent pressure on auction rates or changes in bond sales volumes.
3) The Central Bank ensured liquidity for treasury bonds through repo operations, maintaining interest rate targets and guaranteeing demand for government bonds.
Taking into account the pull-push debate on the weight that external or internal factors have on the behavior of capital flows and country-risk premium of developing economies, the aim of this article is to assess empirically the extent by which the push factors, linked to global liquidity and interest rates, (compared to country-specific factors) play on the changes in the risk premium of a set of countries of the periphery, in the period 1999-2019. This done using the methodology of Principal Component Analysis, which can relate the information from different countries to its common sources. We also test for a structural change in the premium risk series in 2003, by means of structural break tests. We find that push factors do play the predominant role in explaining country risk changes of our selected peripherical countries and that there was indeed a substantial general reduction in country risk premia after 2003, confirming that the external constraints of the periphery were significantly loosened by more favorable conditions in the international economy in the more recent period. The results are in line both with the view that cycles in peripherical economies are broadly subordinated to global financial cycles, in but also that such external conditions substantially improved compared to the 1990s.
This paper extends the analysis of Haavelmo (1945), which derived the multiplier effect of a balanced budget expansion of public spending on aggregate demand and output. We first generalize Haavelmo's results showing that a fiscal expansion can have positive effects of demand and output even in the case of a relatively small primary surplus and establishing the general principle that what matters for fiscal policy to be expansionary is that the propensity to spend of those taxed should be lower that of the government and the recipients of government transfers. We also show that endogenizing business investment as a propensity to invest makes the traditional balanced budget multiplier to become greater than one. Moreover, if this propensity to invest changes over time and adjusts capacity to demand as in the sraffian supermultiplier demand led growth model, the net tax rate that balances the budget will tend to be lower the higher is the rate of growth of government spending, even in the presence of other private autonomous expenditures.
This paper extends the analysis of Haavelmo (1945), which derived the multiplier effect of a balanced budget expansion of public spending on aggregate demand and output. We first generalize Haavelmo´s results showing that a fiscal expansion can have positive effects of demand and output even in the case of a relatively small primary surplus and establishing the general principle that what matters for fiscal policy to be expansionary is that the propensity to spend of those taxed should be lower that of the government and the recipients of government transfers. We also show that endogenizing business investment as a propensity to invest makes the traditional balanced budget multiplier to become greater than one. Moreover, if this propensity to invest changes over time and adjusts capacity to demand as in the sraffian supermultiplier demand led growth model, the net tax rate that balances the budget will tend to be lower the higher is the rate of growth of government spending, even in the presence of other private autonomous expenditures.
Thirlwall’s law, given by the ratio of the rate of growth of exports to the income elasticity of imports is a key result of Balance of Payments (BOP) constrained long run growth models with balanced trade. Some authors have extended the analysis to incorporate long run net capital flows. We provide a critical evaluation on these efforts and propose an alternative approach to deal with long run external debt sustainability, based on two key features. First, we treat the external debt to exports ratio as the relevant indicator for the analysis of external debt sustainability. Second, we include an external credit constraint in the form of a maximum acceptable level of this ratio. The main results that emerge are that sustainable long run capital flows can positively affect the long run level of output, but not the rate of growth compatible with the BOP constraint, as exports must ultimately tend to grow at the same rate as imports. Therefore, Thirlwall’s law still holds.
(1) O documento discute a análise de Lara Resende sobre as ideias da Teoria Monetária Moderna (MMT) e propõe um arcabouço teórico alternativo baseado na abordagem do excedente.
(2) A análise de Lara Resende aceita o modelo do Novo Consenso, mas reconhece que não há restrições monetárias ou fiscais. No entanto, suas implicações de política econômica não decorrem desse modelo.
(3) O arcabouço teórico alternativo propõe
1. O documento apresenta um modelo matemático para analisar sistemas econômicos representados por matrizes que indicam insumos e horas de trabalho necessárias para a produção.
2. É definido o conceito de matrizes redutíveis e irredutíveis e apresentados teoremas sobre propriedades de matrizes irredutíveis como tendo um autovalor máximo único.
3. Explica como representar sistemas de preços com e sem excedente usando esse modelo, encontrando soluções relacionadas a autovalores e autovetores das matriz
1) O documento é uma tese de doutorado apresentada à Universidade Federal do Rio de Janeiro que analisa o crescimento liderado pela demanda na economia norte-americana nos anos 2000 a partir da abordagem do supermultiplicador sraffiano com inflação de ativos.
2) No primeiro capítulo, a tese faz uma crítica à abordagem da macroeconomia dos três saldos proposta por W. Godley, argumentando que ela tem inconsistências contábeis.
3) Em seguida, a tese apresenta o arcabouço teórico do
1) O documento discute as contribuições teóricas de Piero Sraffa à teoria do valor e distribuição.
2) Sraffa propôs retomar a abordagem clássica do excedente e criticou a abordagem marginalista neoclássica.
3) Ele mostrou que há uma relação inversa entre salário real e taxa de lucro para qualquer número de bens, confirmando os resultados clássicos.
Este documento é uma dissertação de mestrado que analisa criticamente os modelos neo-kaleckianos sobre como a competitividade internacional influencia a taxa de crescimento de uma economia aberta. O autor argumenta que esses modelos restringem excessivamente a relação entre taxa de câmbio e distribuição de renda e omitem fontes alternativas de desvalorização cambial. Além disso, eles podem permitir déficits comerciais permanentes sem mecanismos de ajuste e sugerem que a desvalorização pode piorar o déficit comercial.
1) O documento discute modelos pós-keynesianos de crescimento e distribuição de renda, comparando-os com a teoria da distribuição de Cambridge.
2) Nos modelos iniciais, o nível de produção e utilização da capacidade dependem negativamente da parcela de lucros, enquanto a taxa de lucro realizada é constante.
3) A teoria de Cambridge argumenta que a parcela de lucros é determinada endogenamente no longo prazo, variando positivamente com o grau de utilização da capacidade.
(1) Keynes criticou a suposição neoclássica de que a taxa de juros é flexível, argumentando que ela é determinada monetariamente e não se ajusta automaticamente para manter o pleno emprego. (2) Sraffa criticou a ideia de que há sempre substituição entre fatores, mostrando que com capital heterogêneo a intensidade do uso de um fator não se correlaciona necessariamente com seu preço. (3) Ambas as críticas questionam se os mecanismos propostos pela teoria neoclássica são suficientes para garant
This paper examines the semiconductor’s industry growing importance
as a strategic technology in the modern industrial system and in contemporary war
-
fare. It also analyzes this industry’s evolution in China and the Chinese semiconduc-
tor industrial policy over the last years. We review the Chinese interpretation of the
‘revolution in military affairs’ and China’s perception of its backwardness as well as
the possibilities of catch-up and evolution in the most sophisticated segments of this
productive chain through domestic firms and indigenous innovation.
1) O documento discute a Hipótese de Estagnação Secular (HES) e suas inconsistências teóricas ao analisá-la a partir de perspectivas neoclássicas e heterodoxas da teoria do crescimento econômico.
2) A HES sugere que economias avançadas enfrentam tendência de estagnação devido a fatores como baixo crescimento populacional, tecnológico e da produtividade que limitam o investimento.
3) O documento mostra que a HES apresenta inconsistências tanto na abordagem neo
A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
New Visa Rules for Tourists and Students in Thailand | Amit Kakkar Easy VisaAmit Kakkar
Discover essential details about Thailand's recent visa policy changes, tailored for tourists and students. Amit Kakkar Easy Visa provides a comprehensive overview of new requirements, application processes, and tips to ensure a smooth transition for all travelers.
An accounting information system (AIS) refers to tools and systems designed for the collection and display of accounting information so accountants and executives can make informed decisions.
University of North Carolina at Charlotte degree offer diploma Transcripttscdzuip
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Summa serrano (1 oct 2015) distribution and cost push inflation in brazil under inflation targeting, 1999-2014
1. 1
Distribution and Cost-Push inflation in Brazil under
inflation targeting, 1999-2014
Ricardo Summa & Franklin Serrano
Federal University of Rio de Janeiro
Abstract
In this paper we analyze the evolution of Brazilian inflation under the inflation targeting
system from a cost-push perspective. We identify the main features of three quite distinct
phases (1999-2003, 2004-2009 and 2010-2014) and explain them in terms of tradable
price trends in local currency, changes in the dynamics of monitored prices and behavior
of wage inflation. We conclude that the trend towards continuous nominal exchange rate
devaluation after mid-2011, together with the strengthening of the bargaining power of
workers and the trend of rising real wages since 2006, means that distributive conflicts in
Brazil are getting much more intense. We also suggest that the apparently very irrational
recent (early 2015) change in the orientation of economic policy towards contractionary
fiscal, incomes and monetary policies in a stagnating economy seems to be ultimately
based on the desire to weaken the bargaining power of workers that was much
strengthened during the brief but intense Brazilian “golden age” of 2004-2010.
Keywords: Cost-Push inflation, Inflation Target System, Functional Income
Distribution, Brazilian Economy.
JEL classification: B51, E31, E58
1. Introduction
Since mid-1999, after the introduction of the inflation-targeting system, the Brazilian
monetary authority pursues a single official objective, the control of inflation, which must
remain inside a pre-defined range around a target value in each calendar year (defined
since 2005 as 4.5% a year plus or minus 2%). Even though the upper limit of the target
range was surpassed from 1999 to 2003, the central bank has been successful in keeping
inflation within this range since 2004. However, from 2010 to 2014 inflation got very
close to the upper limit.
There is a widespread (but incorrect) belief that in Brazil inflation is actually controlled
through the management of aggregate demand, and the latter mainly through the
manipulation of the basic interest rate by the Brazilian Central Bank. In reality, inflation
in Brazil is a cost-push (not a demand-pull) phenomenon and the way in which interest
rate policy actually operates is through the impact of interest rate differentials on the rate
of change of the nominal exchange rate (in situations in which there is no external credit
rationing nor strong political objections to further appreciation of the exchange rate). This
means that a policy of high interest rates usually leads to a process of exchange rate
revaluation which lowers the prices of inputs and tradable goods in local currency, which
in turn also lowers the prices of a number of government-monitored private utilities and
The authors thank Nicholas Trebat and Thereza Balliester Reis for English revision.
2. 2
transport services (which are partially indexed to tradable prices) and thus tends to lower
cost inflation in the economy. In Brazil, therefore, not only is inflation not caused by
excessive growth of aggregate demand, but the only effective and systematic transmission
mechanism of monetary policy is the exchange rate cost channel briefly described above.
In this paper we analyze the evolution of Brazilian inflation under the inflation targeting
system according to this cost-push interpretation. We first discuss (in section 2) some
essential characteristics of the Brazilian cost-push inflation process and the transmission
mechanism of monetary policy. We then identify (in section 3) the main features of three
quite distinct phases mentioned above (1999-2003, 2004-2009 and 2010-2014) and
explain them in terms of tradable price trends in U.S. dollars and in local currency (i..e.,
converted by the nominal exchange rate), changes in the dynamics of the so-called
monitored prices1
and behavior of wage inflation. Each of these three components is
analyzed in more detail in the subsequent sub-sections, namely, tradable prices in local
currency (section 3.1), monitored prices (section 3.2) and wages (section 3.3). In section
4 we look at the changes in the wage share that have resulted from these distinct phases
of cost-push inflation.
We conclude (in section 5) that the trend towards continuous nominal exchange rate
devaluation after mid-2011, together with the strengthening of the bargaining power of
workers and the trend of rising real wages since 2006, means that distributive conflicts in
Brazil are getting much more intense. This explains the increasing difficulties of keeping
inflation below the upper limit of target range. We also suggest that the apparently very
irrational recent (early 2015) change in the orientation of economic policy towards
contractionary fiscal, incomes and monetary policies in a situation in which the economy
is already stagnating (see The Economist (2015) and Serrano and Summa (2015b)) seems
to be ultimately based on the desire to weaken the bargaining power of workers that was
(perhaps inadvertently) much strengthened during the brief but intense Brazilian “golden
age” of 2004-2010 (see Serrano & Summa (2012), Weisbrot et al (2014)).
2. Some structural and institutional features of Brazilian inflation under inflation
targeting system
2.1 High but not complete inflation persistence and high sensitivity to tradable prices
The first thing that draws ones attention when looking at Brazilian inflation compared to
other countries (not only the advanced ones but also developing countries in South
America and elsewhere) is that Brazilian inflation tends to be on average both higher and
more persistent. In addition, though the economy is not very open (with an import content
coefficient of only 12.5% of aggregate demand in 2014 (Serrano & Summa (2015b)),
Brazilian inflation is unusually influenced by the local currency prices of tradable goods
(and thus, of course, by the nominal exchange rate) and other supply shocks.
In our view, these features are explained by the fact that the Brazilian economy still has
a relatively high degree of formal and some informal indexation to past inflation. A large
number of monitored prices of private utilities and services (and some publicly provided
services too), as well as other non-monitored prices such as real estate rents, are still
1
Prices subject to government oversight or regulated by contract with local or federal authorities.
3. 3
formally indexed to past inflation. Moreover, in many cases these monitored prices are
indexed to a price index (the IGP-M index) that is extremely sensitive to the
wholesale/producer price index (IPA), which in turn is strongly affected by the prices of
tradable goods in local currency. This makes these non-tradable service prices quite
sensitive to changes in international dollar commodity prices and changes in the nominal
exchange rate. This rather unusual institutional arrangement was inherited from the
privatization policies of the 1990s and, in spite of some changes discussed further below,
is still mostly in place.
Note, however, that although inflation persistence is relatively high, it is far from being
complete2
. Therefore, the usual condition in new consensus macroeconomic models that
the sum of effects on current inflation of past and expected inflation is equal to one, and
the necessary implication that the effect of a single demand shock would be a permanent
acceleration of inflation3
, have no empirical basis in recent Brazilian experience. It is
instead a condition that is imposed rather than estimated in most macroeconometric
models, with the excuse that agents would be irrational not to take expected inflation fully
into account. But such theoretical argument is hardly reasonable as it confuses the
individual cognitive ability to foresee inflation with the very different question of agents
having the political or market power to include such forecasts in their contracts4
.
In addition, in open economies, the full pass-through from expected to actual inflation for
the economy as a whole also requires the assumption that relative Purchasing Power
Parity holds empirically, that is, that domestic inflation must be equal to tradable goods
inflation in the local currency. This relation clearly has also not been observed in the
Brazilian economy over the period in question5
. So, in reality, full persistence is the
exception rather than the rule outside very high inflation regimes and periods.
But the consequence of acknowledging that inflation persistence, however high, is only
partial is that it appears to lead us to the equivalent of an old (i.e. non-accelerationist)
Phillips curve. This means that, under partial inflation persistence, there would be a
permanent (rather than a temporary as the new consensus model holds) trade-off between
output (and employment) and inflation. This provided, of course, that we could postulate
that demand shocks have a regular effect on inflation, which as we shall presently see,
happens not to be the case in Brazil.
2.2 Very low degree of nominal price (and wage) “flexibility”
The Brazilian economy in the period of inflation targeting (mid 1999 to now) also exhibits
a very low (and in practice irrelevant) degree of either price or wage “flexibility”,
understood as the aggregate response of price markups to deviations of the actual degree
of capacity utilization from its trend normal values and/or the response of wages (or unit
2
For a survey of evidence for partial inflation persistence in the Brazilian economy, see Summa (2011).
3
For a theoretical critique of the hypothesis of full persistence in the new consensus model, see Serrano
(2006) and for a version with expectations, see Setterfield and LeBlond (2003).
4
See Serrano (2010b). See also section 3.3 and table 2 for data regarding the actual capacity of workers in
getting real wage gains in Brazil.
5
See table 2 for data regarding overall inflation and inflation of tradables in local currency. These two
variables are different in the whole period (2000-2014) and even more during shorter periods (2000-2003,
2003-3009 and 2010- 2014).
4. 4
labor costs) to deviations of the open unemployment rate from its longer run trend. Pro-
cyclical markups are hard to find6
and nominal (and real) wages seem to be strongly
correlated with the longer term trend of the open unemployment rate, but not with
fluctuations around this trend7,8
.
There are many reasons for this. In the case of prices, Brazil is hardly a price maker in
any world market. Being thus a price taker, almost all prices of tradable goods (including
commodities which have very flexible international prices) are exogenously given
relative to domestic demand conditions, once international prices and the nominal
exchange rate are given. Moreover, monitored prices comprise a substantial fraction of
the basket underlying the official consumer price index used for inflation targeting (the
IPCA). Also, most of the non-tradable goods and services among the so-called “free” (i.e.
non-monitored) prices tend to follow cost plus markup market pricing rules
(supermarkets, beauty parlors, soft drinks factories, for instance). So price flexibility in
Brazil is relegated to a few (mainly agricultural) goods which are both basically non-
tradable and have “auction” markets (such as tomatoes). And, of course, the movements
of such prices tend to reflect much more the instability of the supply (due to the weather
or other disruptions in the wholesale to retail distribution) than aggregate demand
conditions9
.
And in the case of money wages, at least in the formal market, their short run downward
flexibility would entail costly increases in turnover, as labor laws still forbid most direct
reductions of the money wage of an already employed worker.
Moreover, the most important feature relating to money and real wage dynamics that we
must take into account to understand recent Brazilian inflation is that, contrary to what
the majority of economists think nowadays, positive nominal wage inflation may well
happen way before the economy reaches “full employment”. In fact, it is quite unlikely
that true full employment is ever reached in peacetime in a capitalist economy, and this
is even more unlikely in a developing economy with a large informal sector and disguised
unemployment. But as the classical economists from Smith to Marx knew, persistently
lower trend rates of unemployment strengthen the bargaining power of the labor force,
6
For empirical evidence of (mostly anti-cyclical) markups in Brazilian industry, see Feijo and Cerqueira
(2010).
7
The empirical inverse relation between the levels of real wage and the levels of the unemployment rate is
known as the wage (bargaining) curve (Blanchflower and Oswald (2005)). Empirical evidence regarding
the existence of wage curves in Brazilian economy can be found in Amitrano (2015).
8
Summa and Braga (2014) disaggregated Brazilian overall price index in “services”, “industrial goods”,
“food and beverage” and “monitored” prices. The results found after estimating equations for each
disaggregate inflation rate are that demand shocks are not important to explain the inflation dynamics of
“industrial goods”, “food and beverage” and “monitored goods and services”. The inflation of free
“services” is explained by the level of the unemployment rate, but not by deviations of unemployment rate
relative to its trend. This last result is compatible with the hypothesis of the appearance of a more structural
process of wage inflation in Brazil since 2006 as a result of higher bargaining power of workers, that will
be presented in sub-section 3.3.
9
Actually, Summa and Braga (2014) found a negative relation between “food and beverage” inflation and
demand for “food and beverage” (sales in supermarkets), and the granger causality tests point out in the
direction of higher inflation causing lower demand. Bastos, Jorge and Braga (2014) estimated disaggregated
inflation equations for 17 industrial sectors and found no systematic relationship between sectoral inflation
and demand (measured by degree of capacity utilization ), and the evidence of cost pressures as the main
determinants of inflation dynamics of the analyzed sectors, particularly changes in international prices and
in the nominal exchange rate.
5. 5
especially under favorable political and institutional circumstances (Kalecki (1971),
Rowthorn (1977)). In this view, wage inflation is understood as a consequence of
‘workers “excessive” demands’ (or claims) relative to productivity growth, instead of the
usual neoclassical view of an ‘excess demand for labor’ (Palumbo(2015)10
. And this can
occur even if the economy is still far away from full employment. For other political or
institutional reasons wage inflation may not appear at all even if the level of employment
is growing fast (as in Brazil during the period of military rule). Thus, the relationship
between wage inflation and the trend of the unemployment rate is not necessarily stable,
and this relationship is mediated by political, institutional and cultural aspects that
influence workers' bargaining power (Kalecki, 1971, Rowthorn, 1977, Stirati, 1994,
2001)11,
. This point is very important, because the recent increase in money and real
wages in Brazil has widely been incorrectly interpreted as evidence that the economy is
overheating, because it has supposedly reached full employment of labor (even by many
who acknowledge that there is still spare capacity in the capital stock).
In any case, the upshot of the above discussion is that for various causes, a regular relation
between any sort of demand gap and nominal prices and wages is very difficult to find in
the data for the Brazilian economy12
.
2.3 The transmission mechanism of monetary policy: demand and cost channels
The lack of significant aggregate nominal flexibility would make controlling inflation
through the manipulation of aggregate demand quite difficult even if the control of
aggregate demand through changes in interest rates was easy (in other words if a stable
IS curve could be easily identified).
However, in Brazil (as in many other countries) this is not the case. Private nonresidential
investment tends to be entirely induced by expected demand relative to installed capacity
and totally insensitive to interest rate reductions (and other incentives such low taxes or
higher markups)13
. Persistently lower interest rates do seem to encourage residential
investment and autonomous consumption based on credit but even here the lags and shape
10
Precisely because of the possibility of wage inflation arising way before full employment ,Abba Lerner
(1951) long ago created two different expressions : he called “Low Full Employment”, a situation in which
current output level is below its potential, and it is still possible to expand the level of employment through
increased spending, but workers bargaining power is strong and creates a wage-price spiral; and called
“High Full Employment”, the actual point of full employment with labor scarcity, at which it is impossible
to expand employment level stimulating aggregate demand.
11
On the relationship between labor market conditions and wage behavior, for example, Phillips (1958)
says that both the level and the change in unemployment rate may be important to explain wage growth.
Lower levels of unemployment lead to greater competition between employees, which leads to an increase
in money wages. On the other hand, decreases in the unemployment rate (the rate of change of the
unemployment rate) enhances the workers´s bargaining power and put them in a stronger position to
demand wage increases (Phillips, 1958, p. 283; see also Pollin, 2003, Palumbo(2015)). Moreover, not only
both the level and the change of the unemployment rate could influence wage inflation, but also the time
for which the unemployment rate remains at high or low levels. Thus, in periods where the unemployment
rate is kept in low (high) levels for a long period, an increase (decrease) in the bargaining power of workers
can arise through the “discipline effect” (Kalecki (1943)).
12
For evidences see Braga (2013), Summa and Braga (2014), Bastos, Braga and Jorge (2014), Summa and
Macrini (2014). See also Summa (2011) for a survey.
13
Dos Santos (2013), Dos Santos et alli (2015), Serrano and Summa (2015b).
6. 6
of the credit cycle are strongly affected by institutional and regulatory changes in the
banking system14
.
To make matters even more complex, in Brazil, in spite of the fact that the majority of
Brazilian economists are strong trade elasticity optimists, the empirical evidence seems
to show that real exchange rates have very small direct positive effects on net exports (in
fact in most estimates they fail to meet the Lerner conditions so with given output they
do not even improve the trade balance)15
. On the other hand, there is also a lot of evidence
that real wages tend to increase when there are nominal and real exchange rate
revaluations16
.
These two things together usually mean that in Brazil (as in many other countries)
exchange rate devaluations tend to decrease aggregate demand because the negative effect
on real wages and consumption is much stronger than the possible positive direct effect
on net exports. Conversely, a nominal and real revaluation tends to increase rather than
decrease aggregate demand. This implies that when the central bank increases interest
rates, if this increase is accompanied by a tendency for exchange rate revaluation (as is
often the case in Brazil), then real wages and induced consumption will tend to increase
as well, even when higher interest rates slow down residential investment and credit for
consumer durables. This relationship between the exchange rate, interest rates and real
wages makes the so called IS curve quite unstable and unreliable.
Therefore the traditional transmission mechanism of monetary policy linking higher
interest rates to lower aggregate demand and lower prices and wages can hardly be at
work in the Brazilian economy.
2.4 The exchange rate cost channel of monetary policy
Given that the demand channel of monetary policy does not seem to work in Brazil, we
should turn to the cost channel. The first element of the cost channel of monetary policy
is the possible “perverse” effect of interest rate increases on cost inflation. In fact, there
is evidence of the so-called “price puzzle” in Brazil. Moreover, there is also some
evidence that gross profit markups tend to increase together with interest rates as both the
borrowing and opportunity costs of capital for firms increase when interest rates are
raised17
. This effect makes the control of inflation through increases in interest rates even
more difficult.
14
Serrano and Summa (2015b).
15
For econometric evidence of a relatively low price-elasticity of imports and exports in Brazil, see Dos
Santos, Cieplinski, Pimentel and Bhering (2015) and Padrón et al (2015), respectively.
16
For the large impact of nominal and real devaluations on inflation see the references in footnote 11
above. The negative effects on the growth of the real wage can be seen in section 3 below, especially
after the large devaluations of 2002 and 2009 (after 2011 as will be explained in section 4 below, this
was contained by slower growth of monitored prices).
17
Summa and Macrini (2014) found a positive relation between the rate of change of the nominal basic
interest rate and overall inflation, while Braga and Summa (2014a), using disaggregated data for inflation
show that this relation is circumscribed to industrial goods. This effect seems to be particularly relevant
in the short run because in Brazil circulating capital is financed by banks at very high nominal rates of
interest that are also strongly affected by changes in the central bank rate (Manhiça and Jorge,2012). This
effect makes the control of inflation through increases in interest rates even more difficult. Also, for
empirical evidence of the relation between real interest rate and profit rate, see Bastos and Braga (2010).
7. 7
Luckily for the monetary authorities, this “perverse” effect of higher interest rate on
inflation is just a level effect, i.e., a single change in nominal interest rates tends to lead
to a single increase in gross profit markups. This being so, this effect is usually more than
compensated by a much stronger effect through changes in the nominal exchange rate due
to higher interest rates. As a higher nominal interest rate leads to a higher international
interest rate differential and this is usually associated with a positive rate of change of the
nominal exchange rate, a positive interest rate differential leads to a process of further
changes of the exchange rate in the same direction due to the strong effect of the recently
realized values of the actual spot exchange rate on exchange rate expectations18,19
. So the
positive interest rate differentials often lead in Brazil to a process of continuous nominal
exchange revaluation, which has a strong effect of lowering tradable price inflation
directly and monitored price inflation indirectly. As prices in these sectors affect
production costs in all other sectors of the economy, the interest rate differentials
eventually reduce, with a lag, inflation in the so-called free price sectors. This is the
effective channel of monetary policy in Brazil and it is this effect that explains how the
authorities often managed to hit the inflation target band despite the inoperative demand
channel of monetary policy (and the incomplete inflation persistence)20
.
3. Three Phases of Brazilian inflation
Looking at overall inflation data in Brazil during the inflation targeting system (figure 1),
we can distinguish three distinct patterns. First, from the beginning of 1999 until 2003,
inflation was very high and in almost every year above the upper limit of the target range.
After that, inflation was gradually controlled and oscillated around the center target rate
from 2004 to 2009. Since 2010, inflation has again got very close to the upper limit of the
target range.
18
Notice that we are saying that the interest rate is exogenous, in the sense that the central bank sets the
basic interest rate (and thus to influence also the expectations of long term rate) and there is no market
mechanism capable of changing this rate (Serrano and Summa (2013)), even in an open economy (Lavoie
(2000, 2001, 2014), Serrano and Summa (2015a)). Therefore, the central bank does not actually face a
“trilemma” (Summa, 2015).
19
The idea is that exchange rate expectations in Brazil are in part of the “adaptive” type. Thus, an actual
change in the nominal exchange rate usually tends to change the expected exchange rate in the same
direction, amplifying the process of revaluation or devaluation. For a theoretical explanation for this
relation, see Summa (2012) and Serrano and Summa (2015a). For empirical evidence of this effect in
Brazil, see Cieplinski, Braga and Summa (2015), that show that there is a relation between interest rate
differentials (measured by Brazilian (selic) and US basic interest rate (Fed funds rate) plus the sovereign
spread (EMBI br)) and the change (not the level) of the nominal exchange rate. In the same paper, it is also
shown the relation between interest rate and changes in the exchange rate itself changes over time. In the
period 1999- 2003 exchange rate devaluations forced the central bank to raise interest rate differentials. In
the period since 2004, Brazilian Central Bank maintained large interest rate differentials and that drove a
process of almost continuous nominal exchange rate appreciation until 2010 (the 2009 devaluation having
quickly reversed itself).
20
For empirical evidence, see Barbosa-Filho (2008), Modenesi and Araujo (2012), Braga (2013), Bastos,
Jorge and Braga (2014), Summa and Macrini (2014). Summa and Braga (2014) shows that tradable inflation
in local currency explains the evolution of inflation in all sectors, including tradable goods, like food and
industrial goods, as expected, but also services (mainly restaurants) and monitored prices (since the price
index used to adjust some monitored contracts - IGP-M - is very sensible to tradable inflation).
8. 8
Figure 1 – Overall Inflation and the inflation target
Source: IPCA/IBGE; BCB.
Let us then divide Brazilian inflation into these three periods and take a closer look at the
behavior of the main sources of cost increases, namely, monitored prices, money wages
and tradable prices in local currency (Figure 2). In 2000-2003, Brazilian average annual
inflation was 8.8%, as a result of a strong external shock (inflation of tradable goods of
20.4% basically due to exchange rate devaluations) together with high inflation of
monitored goods and services (12.1%). Nominal wages grew only 2.9% on average,
which surely helped to prevent an even higher level of overall inflation but resulted in a
decrease in real wages. After this, in the years 2004-2009, overall average annual inflation
was lower (5.2%). In this period nominal wages grow at an average of 8.4% a year. There
was a series of changes in monitored prices’ contracts (reducing some markups and the
sensitivity of these in relation to the exchange rate) and annual monitored goods and
services inflation fell to 5.3%. The low inflation of tradables (1.5%), due to the process
of exchange rate appreciation and driven in part by the interest rate differentials, was thus
crucial to lower overall inflation. Finally, in 2010-2014, a higher overall inflation was a
result of the continued growth of money wages (average of 8.9%) together with much
higher tradable goods inflation (6.8%). Inflation in this period was kept just below the
upper range of the target (6,1%) thanks to a set of policy decisions that resulted in a lower
inflation of monitored goods and services (4.0%).
8.9
6
7.7
12.5
9.3
7.5
5.7
3.1
4.5
5.9
4.3
5.9
6.5
5.84 5.91
6.41
0
2
4
6
8
10
12
14
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
9. 9
Figure 2 – Overall Inflation and its cost-push determinants
Source: IBGE; CAGED/MTE; BCB.
We now analyze each one of these three components of cost inflation – change in
nominal (and real) wages, local currency prices of tradables and monitored prices – in
order to see why each of them behaved differently in each of the three periods.
3.1 Interest rate, nominal exchange rate and tradable prices in local currency
Turning first to changes in tradable prices in local currency, note that this variable
comprises both international prices variations (in US$) and nominal exchange rate
changes. What matters for domestic inflation is the net effect, measured in local currency,
of the change in international prices. Note also that “tradable” inflation refers to both
imported goods as well as exportable final and intermediate goods which, through
competition, influence domestic prices.
As we saw in figure 2, tradable inflation in local currency behaved quite differently since
2000 in Brazil, and this is a result both of the evolution of exogenous international prices
in US$ and the Brazilian nominal exchange rate. International nominal prices in US$ for
tradable goods relevant to Brazil were stable in the years 2000-2002, then rose fast from
2003 to 2008, fell quickly in 2009 and rose again until 2011. After that, prices in US$ fell
gradually (figure 3).
The transmission from international prices to domestic prices, however, depends on the
evolution of the nominal exchange rate, and in Brazil this regime consists, since 1999, of
8.8%
5.2%
6.1% 6.4%
2.9%
8.4% 8.9%
7.4%
20.4%
1.5%
6.8%
8.1%
12.1%
5.3%
4.0%
6.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2000-2003 2004-2009 2010-2014 2000-2014
Inflation Nominal Wage growth
10. 10
a very “dirty” form of managed floating. The Brazilian central bank plays a decisive role
in managing the nominal exchange rate by accumulating (or selling) foreign reserves,
setting nominal interest-rates and operating in futures markets.
Figures 3 – Level of Brazilian Import and Export prices in US$
Source: FUNCEX. Moving average for 12 months, 1998:12 = 100.
Figure 4 shows the evolution of interest rate differentials (Brazil’s nominal basic interest
rate minus Fed funds rate plus the sovereign spread). Despite the very high nominal basic
interest rates set by the monetary authority through 2003, interest rate differentials were
low or even negative in this period, as a result of unfavorable external conditions and
increasing sovereign spreads. As we can see in figure 5, there is a sequence of large
nominal exchange rate devaluations in this period. The initial sequence of nominal
devaluations tended to lead to expectations of further devaluations.21
With the improvement in external financing and trade conditions after 2003, which
dramatically lowered the sovereign spreads of most developing countries22
, Brazil’s
monetary authority was able to set the nominal interest rate significantly above the
international rate (plus sovereign spread) between 2004 and 2009, thus gaining some
control over the trend of the nominal exchange rate. As a result, there is a process of
nominal appreciation of the Brazilian currency in this period, with the endogenous
process of exchange rate expectations described above operating in the other direction,
thus generating a trend of exchange rate appreciation (until mid-2011, despite the sudden,
but quickly reversed, shock of the international crisis of late 2008).
Since mid-2011, despite the fact that Brazilian nominal interest rates remained well above
international rates (plus spread), the international turmoil generated by financial
21
See footnote 17 above.
22
See Freitas, Medeiros and Serrano (2015).
0
20
40
60
80
100
120
140
160
180
200
1998.12
1999.07
2000.02
2000.09
2001.04
2001.11
2002.06
2003.01
2003.08
2004.03
2004.10
2005.05
2005.12
2006.07
2007.02
2007.09
2008.04
2008.11
2009.06
2010.01
2010.08
2011.03
2011.10
2012.05
2012.12
2013.07
2014.02
2014.09
Price Index - Imported goods and services (US$)
Price Index - Exported goods and services (US$)
11. 11
turbulence in the Eurozone lead to the devaluation of the Real. As the new orientation of
macroeconomic policy included the idea of devaluing the exchange rate, the government
did not try to avoid this process of devaluation and allowed the initial sequence of nominal
devaluation to generate into expectations of further devaluations.23
As a result, between
2011 and the end of 2014, the domestic currency depreciated by 60% (figure 5).
Figure 4 Interest rate differentials
Source: FED, Morgan Stanley (IPEADATA), BCB.
23
For the reasons that led the Brazilian government to change the orientation of macroeconomic policies
after 2011 toward an new policy mix in which a large real exchange rate devaluation would have to play
an important role see Serrano and Summa (2015b).
0%
5%
10%
15%
20%
25%
30%
2000.01
2000.07
2001.01
2001.07
2002.01
2002.07
2003.01
2003.07
2004.01
2004.07
2005.01
2005.07
2006.01
2006.07
2007.01
2007.07
2008.01
2008.07
2009.01
2009.07
2010.01
2010.07
2011.01
2011.07
2012.01
2012.07
2013.01
2013.07
2014.01
2014.07
fed funds rate + embi br Selic
12. 12
Figure 5 Nominal exchange rate
Source: BCB.
Summing up, the inflation-targeting system in Brazil in practice operates likes this: when
the Central Bank can increase or maintain a high interest rate differential and does not
mind appreciation of the nominal exchange rate, it can keep inflation low. The higher
interest rate increases the interest rate differential and speeds up the tendency of nominal
appreciation of the currency. This can allow monetary authorities to transform, say, a
negative supply shock in U.S. dollars, such as an increase in international commodity
prices, into a positive one in Brazilian Real. However, when the Central Bank is not able
to appreciate the nominal exchange rate, either because of deteriorating external
conditions (1999-2003 and 2008) or for political reasons (2011-2014), tradable inflation
in local currency goes up and makes it much more difficult to reach the inflation target
(Serrano and Summa, 2012).
Figure 6 shows the behavior of tradable prices in local currency. Notice that international
commodity prices in local currency (measured by the Brazilian central bank index of
commodity prices relevant to Brazil – IC-Br) strongly influence the overall behavior of
prices of both total imports and total exports for Brazil, as the Brazilian economy is a both
a large importer and exporter of commodities.
1.5
2
2.5
3
3.5
4
1999.06
1999.12
2000.06
2000.12
2001.06
2001.12
2002.06
2002.12
2003.06
2003.12
2004.06
2004.12
2005.06
2005.12
2006.06
2006.12
2007.06
2007.12
2008.06
2008.12
2009.06
2009.12
2010.06
2010.12
2011.06
2011.12
2012.06
2012.12
2013.06
2013.12
2014.06
2014.12
13. 13
Figure 6 Tradable prices in local currency
Source: Funcex; BCB. Moving average for 12 months, 1998:12 = 100.
3.2 The behavior of monitored prices
Monitored prices inflation, as we saw above (figure 2), was higher than overall inflation
during 2000-2003, decreased in 2004-2009 and then decreased even more in 2010-2014,
helping to control overall inflation in the latter period.
After the privatization process in the mid-nineties, many contracts of monitored prices
were indexed –to the IGP-M, a price index strongly affected by wholesale or producer
prices, and hence by tradable prices. In figures 7 to 9 we present the behavior of monitored
goods and services inflation (blue) as well as other services that are not considered strictly
as monitored but are covered by formally indexed contracts (private health, education and
housing rents). Figure 7 shows that prices for almost every monitored good and service
between 1995 and 2003 (as well as other services included in the central banks category
of free prices but that are in fact formally indexed service prices) grew faster than overall
consumer prices (measured by the target index IPCA).
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0 1998.12
1999.07
2000.02
2000.09
2001.04
2001.11
2002.06
2003.01
2003.08
2004.03
2004.10
2005.05
2005.12
2006.07
2007.02
2007.09
2008.04
2008.11
2009.06
2010.01
2010.08
2011.03
2011.10
2012.05
2012.12
2013.07
2014.02
2014.09
Price Index - Imported goods and services (R$)
Price Index - Imported goods and services (R$)
Brazilian Commodity Index (IC-BR - R$)
14. 14
Figure 7 – Annual Average Monitored prices’ inflation and overall inflation
(IPCA): 1995-2003
Source: IPCA/IBGE.
Up to mid-2005, monitored prices seemed in the aggregate to track the IGP-M index very
closely and rise faster than the IPCA, amplifying the inflationary effects of the fluctuation
of international commodity dollar prices and the nominal exchange rate. After 2006, the
monitored prices begin to increase more slowly than IGP-M. These trends seem to be the
result of a number of institutional changes that occurred in 2005 and 200624
in the
indexing mechanisms of some administered or monitored prices and also a change in the
pricing policy by Petrobras25
. So it appears that after 2006 these regulatory changes were
enough to reduce the degree of indexation of monitored prices in general, and the role of
tradable inflation in local currency in particular26
. Figure 8 shows that most administered
24
There was also a major overhaul of the regulatory framework in the electric power generation and
distribution in 2004 and the introduction of new contracts regulating the pricing of private telephone
companies’ telephone call rates in 2006, with a new price index related to the actual costs of this sector and
a variable “x per cent” reduction factor to take account of productivity growth. For more details see
Martinez and Cerqueira (2013) and Serrano and Summa (2012).
25
Petrobras held to a policy of stabilizing nominal domestic prices of oil fuels initially on its own; and then
when it was not possible to keep prices from increasing due to the ongoing huge international oil dollar
price increases in 2008, the Treasury helped to moderate the domestic price increases by temporarily
lowering indirect tax rates on oil.
26
These policies were also important to control and reduce the monopoly profit markups of some of these
sectors.
25% 24%
18%
16% 16%
14% 14% 14%
12% 12% 12% 11%
10%
9% 9%
7% 6%
0%
5%
10%
15%
20%
25%
30%
15. 15
goods and services prices grew more slowly than overall inflation during this period,
including electricity and telecommunications fares, gasoline and gas.
Figure 8 – Annual Average Monitored prices’ inflation and overall inflation
(IPCA): 2004-2010
Source: IPCA/IBGE.
Since 2011, the Brazilian government began a more aggressive and discretionary policy
of controlling electricity and oil prices. The Treasury lowered indirect tax rates on
gasoline to zero in June 2012 and has subsidized energy consumers and producers since
2013, this after a strong discretionary reduction in energy prices by the state-owned power
company Eletrobras in the beginning of 2013. Also in the beginning of 2013, the federal
government asked several municipal governments to postpone public transport fare
increases. These price adjustments were postponed again in June 2013 as a reaction to
earlier mass street demonstrations sparked by the announced increases (Martinez (2014)).
These policies taken together reduced monitored price inflation to 4.2% in the 2011-2014
period, allowing the government to maintain overall inflation inside the inflation target
range in each year, despite high tradables and wage inflation. Figure 9 shows that in this
period prices grew above overall inflation only in those indexed services where the
government has relatively less power to intervene, such as rents, private health and
education.
9%
7%
7%
6% 6% 6%
6% 5%
5% 5%
5% 5% 4%
4%
4%
3%
3%
1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
16. 16
Figure 9 – Annual Average Monitored prices’ inflation and overall inflation (IPCA):
2011-2014
Source: IPCA/IBGE.
3.3 Workers’ bargaining power, wages and productivity
As discussed in section 2, nominal (and real) wages can grow even if the economy is far
from a situation of general labor scarcity and this depends on the bargaining power of
workers. The latter is a result of complex structural factors involving political and
institutional aspects, but also depends on the concrete situation of the labor market. In
this sub-section we analyze the role of some of these structural factors and of labor market
conditions to shed light on the relation between workers’ bargaining power and wage
inflation in Brazil27
.
First of all, in the case of Brazil in recent times, it is very important to notice the role of
the minimum wage policy. Real (nominal) minimum wage growth n averaged more than
5% (12.5%) annually between 2000 and 2014. This policy variable is important because
it affects directly and indirectly both the labor market conditions and the general
bargaining power of workers. As many Brazilian government social transfers (such as old
age and disability pensions, unemployment benefits, etc, see Orair and Gobetti, 2010) are
27
Here we are inspired by earlier works such as Garegnani, Cavalieri and Lucii (2008) and Glyn (2006)
applied to advanced countries in general and Pollin, R. (2002), Setterfield, M. (2005) and Setterfield, M. &
Lovejoy, T. (2006) for the US.
10%
9%
8%
8%
7%
6%
5% 5%
5% 4% 4% 4%
4% 4% 3%
1% 1%
-2%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
17. 17
indexed to changes in the minimum wage, increases in the real minimum wage has a
strong impact on family poverty rates and social insurance conditions (Amorin and
Gonzalez 2009) and this influences the bargaining power of poorer workers, as well as
their labor supply and reservation wages. In addition to substantial increases in minimum
wages, in the recent period there was also an increase in the coverage of unemployment
benefits28
(Ibarra, 2013) and other welfare payments (some estimate that more than 50
million people were taken out of poverty in the 2000s in Brazil , see Serrano & Summa
(2012)).
Increases in the minimum wage have both direct and indirect effects on labor market
conditions in Brazil. The direct effects are that of increasing the wages of less skilled
workers. This works through many channels, such as: (1) the direct effect on wages in the
public and formal private sectors; (2) the positive effects on wages negotiated in the
informal capitalist sector (called the “lighthouse” effect in Brazil) for urban and rural
workers and (3) the positive effect on wages in the informal personal services sector
(such as housemaids, for instance) for which the minimum wage (or fractions of it) are
an accepted social norm (Medeiros(2015b)).
The indirect effects operate through higher average incomes for self-employed informal
workers. A part of the higher income of both workers and recipients of government
benefits that comes from higher minimum wages tends to increase the average income of
self-employed informal sector workers who sell many of their goods and services to other
low-income workers. Taken together with the generally positive formal sector
employment effect of higher wage incomes and government transfers (whose recipients
tend to have a high marginal propensity to consume), the indirect positive effect on the
average income of the self-employed workers in the informal sector works both through
more aggregate income being spent on the services of the self-employed and through the
reduction of the relative number of people in this sector, as jobs in the formal sector
increase. Through both of these indirect channels, higher minimum wages tend to increase
substantially the average per capita income of informal workers.
Besides these effects of the policy of real minimum wage increases, we must take into
account the role of labor unions.
Although the general degree of unionization has not increased in recent years and
improvement in this regard has been restricted to rural areas (Cardoso, 2014), Brazil is
one of the few countries in the world in which unionization levels did not fall in the last
decade (Pichler (2011)). Also, again according to Cardoso (2014), there is no evidence
that unions have lost strength in recent years, quite the contrary, as "union action,
although invisible (because it does not cause the same commotion of other times), seems
quite effective, and spread throughout the country, and in all economic sectors29
".
As noted above, Brazil experienced a great improvement in the labor market conditions
between 2004 and 2014 (Figure 10), with a boom in formal employment as a result of
faster economic growth combined with improvement in labor inspection, changes in tax
28
The coverage rate of unemployment benefit and “abono salarial” between 2000 and 2012 was relatively
high, with the number of beneficiaries increasing 99.2% and 281.1%, respectively. (Ibarra, 2013, p. 259).
In comparison with another countries, the Brazilian program is notable for the number of beneficiaries who
have access to the system (Castro Pires and Lima Junior, 2014).
29
Also, we cannot forget the very good relations between the major labor union (CUT) and the workers
party which is governing Brazil since 2003.
18. 18
laws30
and greater legal awareness among workers31
(Berg (2010)). Labor informality fell
from 56.2 % in 1999 to 44.8% in 201232
. Open unemployment rates fell continuously
from 2003 to 2014, as a result of faster employment growth after 2004 33
together with a
very large reduction in the rate of growth of the labor force. The latter seems to be due to
both a change in demographical factors and in the labor supply of some groups benefitted
by social security policies (for an extreme example, a marked reduction in child labor
(Chahad and Pozzo (2013)). The labor force grew on average 3% a year in the period
2001-2005 but only 1.2% a year in 2006-2014. And the rate of growth of the working age
population fell from 1.9% to 1.3% in each period.
Figure 10 – Formal employment and unemployment rate
Source: IBGE/PME; CAGED
30
Berg (2010) points out the introduction of the SIMPLES law, which simplified and lowered taxes for
small- and medium sized enterprises in exchange of then following formal labor laws. Another incentives
for firms to enter the formal sector is that this gives them access to the formal credit market and allows
them to make sales using credit cards, for instance.
31
Formal workers in Brazil enjoy important benefits and protections that informal workers are not
guaranteed, according to Berg (2010). Other important point is that formal jobs give workers access to the
formal credit market, and this makes it desirable for workers to demand formalization in order to have
access to bank accounts, overdrafts and credit cards, for example.
32
Carvalho (2015) shows that labor informality rate dropped even sharply for more precarious kinds of
jobs.
33
As Amitrano (2013) points out the sectors where employment grew faster were the construction industry,
services (and commerce) and public administration, which are very labor intensive.
0.8
0.6
1.5
1.3 1.2
1.6
1.5
1.0
2.1
1.6
0.9
0.7
0.2
0.0
0.5
1.0
1.5
2.0
2.5
0
2
4
6
8
10
12
14
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Formal Employments (million, right axis) Unemployment rate (%, left axis)
19. 19
As a consequence of improved labor market conditions, greater coverage of social and
labor insurance and an extended period of low unemployment , workers' bargaining
power increased substantially and generated a tendency towards higher nominal real
wages, especially after 2006. This tendency, furthermore, intensified after 2010. The
number of strikes and labor hours spent on strike increased considerably in 2011 and 2012
(figure 11). , as did the number of collective bargaining agreements (9.8 thousand in 1997
versus 32.7 in 2008 according to Brazilian Ministry of Labor (MTE)). A large percentage
of these agreements resulted in nominal wage increases higher than past inflation, a trend
that became more evident after 2006, This contrasting sharply with the 1999-2003 period
(figure 12). Taken together, these trends indicate that the general bargaining power of
workers in Brazil increased rapidly and significantly after 2006.
Figures 11 – Strikes and hours on Strike: 1999-2012
Source: SEADE/DIEESE
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
0
100
200
300
400
500
600
700
800
900
1000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Hours on strike (thousands, right axis) Strikes (left axis)
20. 20
Figures 12 –Percentage of workers with real wage gains
Source: SEADE/DIEESE
The result of this increased bargaining power appears clearly in the behavior of real
wages34
. Table 2 shows that the pattern of real wage growth is quite distinct if we compare
the years 2000-2005 with 2006-2014. In the first period, real wage growth is either low
or in most cases negative, both in aggregate (average -2.4 and -3.2%, according to IBGE
and CAGED respectively) and in disaggregated activities. Real wages begin to rise after
2006 (average of 3.2% and 3.1%, according to IBGE and CAGED, respectively).
As we discussed in section 2, the emergence of a process of real wage growth does not
necessarily means that the economy is operating above full employment in the sense that
real wages grows because of labor scarcity35
(unless you can only conceive real world
phenomena through a neoclassical lens). Figure 13 shows that real wage growth starts in
2006 when the open unemployment rate was about 10%. and despite the continuous fall
in the latter, real wages continued to grow after 2006 at the same approximate average
rate of 3% a year36
.
34
Unfortunately, the quality of the data regarding wages in Brazil is not very satisfactory. In our view the
most reliable source is the data from CAGED/MTE, which is concerned with formal job contracts. The
main problem with this data, however, is that it do not encompass the wages of the whole formal labor
force, but only the wages of new formal job contracts (admissions) and broken formal job contracts
(terminations). The other source of data provided by PME/IBGE is related with average income received
from all the workers, both formal and informal. The main problem with this source of data is that it is not
a good proxy for wages in the sense of cost per working hour, since it includes self-employed workers in
the informal sector whose average income is strongly affected by the level of sales in this sector.
35
Baltar (2015) argues that enterprises are not facing difficulties in finding workers willing to work, i.e.,
there is no scarcity of labor, but they have difficulty in keeping the employees working in the same
enterprise because of a high turnover rate.
36
Also data of unemployment rate from other sources suggests that this rate is higher than the official one
from IBGE, as for example data from SEADE/DIEESE shows that total unemployment rate was in average
10.9% in 2011-2014 and 10.4% in 2014, as it incorporates also the disguised unemployment of 2.3% and
2.0 respectively. Also data from PNAD/IBGE shows that if you consider the whole country and not the
35%
53%
45%
28%
20%
55%
72%
86% 88%
78% 80%
89% 87%
95%
87%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
21. 21
Figures 13 Real wage growth and unemployment
Source: CAGED; IPCA/IBGE; PME/IBGE
The relation between nominal wage increases and inflation depends, among other things,
on the degree of openness to foreign competition, technical intensity of labor per output
and productivity growth of each economic activity. If we disaggregated the so called free
prices index groups into “food and beverages”, “industrial goods” and “services”, it is
clear that these three activities face quite different structural and institutional conditions.
As can be seen in figures 14 to 16, since 2004 the growth of money wages in agriculture
was in general higher than inflation for “food and beverages”, and this can be explained
because agriculture had high productivity growth37
(5.1% in average, see table 138
) and
“food and beverage” are highly exposed to foreign competition (according to Martinez
(2014) more than 85% of the “food and beverage” goods are tradables). But nominal unit
labor cost in agriculture rises less than “food and beverage” inflation in the whole period
2000-2014, probably implying high profits for this sector as a result of high international
commodity prices.
Money wage increases in manufacturing industry were also higher than “industrial
goods” inflation since 2005. The average growth of industrial productivity (which is
strongly pro-cyclical (Summa and Braga, 2013)) in the period 2001-2014 was 1.6%. The
nominal unit labor cost of manufacturing industry rose less than inflation in 2000-2003,
but this relation is slightly reversed in the 2004-2009 period, getting even stronger since
2010, when productivity growth in manufacture industry stagnated. Since this sector is
highly open to foreign competition, probably this sector´s profit markups have probably
decreased since 2011.
most dynamic metropolitan areas (as data from PME/IBGE), unemployment rate was higher, 6.8% in
average in 2014. Besides that also according to PNAD/IBGE, there were in average 6 million of domestic
workers employed in Brazil in 2014, which amounts to 6.6% of total employment.
37
Measured as value added per worker.
38
Unfortunately, the Brazilian National Account System of IBGE provided data about value added and
total number of employees for these disaggregated activities only until 2011. For an analysis of the growth
of aggregate and sectorial labor productivity of the Brazilian economy between 2000 and 2011 and the role
of change in relative prices in the estimated results, See Fevereiro and Freitas (2015).
-13.8%
-2.7% -0.7%
0.9%
2.8%
3.8% 4.5%
2.7% 3.3% 2.9% 3.8% 3.5%
1.3%
0
2
4
6
8
10
12
14
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Real wage growth Unemployment rate
22. 22
Finally, money wage growth in the service sector was very close to the inflation in
services since 2003, as most services are non-tradables, intensive in labor and tend to
present low productivity gains (See Baumol, 2012). The data on productivity growth in
service sector (average of 0.9% in 2000-2011), taken together with that of money wages
appears to show that overall prices followed the trend of unit labor costs in service
sector.39
Figure 14 - Wage and price inflation: Agriculture and Food
Source: CAGED/MTE; Martinez (2014)
Figure 15 - Wage and price inflation: Industrial goods
39
Another important point to note in Figure 16 is that Brazil experienced a step change in the level of
inflation in service sector after 2011, but services inflation is not accelerating. Similarly, the rate of change
in nominal wages in service sector, after peaking in 2011, stabilized at this higher level and is also not
accelerating over time.
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1T01
3T01
1T02
3T02
1T03
3T03
1T04
3T04
1T05
3T05
1T06
3T06
1T07
3T07
1T08
3T08
1T09
3T09
1T10
3T10
1T11
3T11
1T12
3T12
1T13
3T13
Nominal wage growth - Agriculture Inflation - Food and beverages
-10%
-5%
0%
5%
10%
15%
20%
1T01
3T01
1T02
3T02
1T03
3T03
1T04
3T04
1T05
3T05
1T06
3T06
1T07
3T07
1T08
3T08
1T09
3T09
1T10
3T10
1T11
3T11
1T12
3T12
1T13
3T13
Nominal wage growth - manufacturing industry
Inflation - Industrial goods dos Bens Industrializados
23. 23
Source: CAGED/MTE; Martinez (2014)
Figure 16 - Wage and price inflation: Services.
Source: CAGED/MTE; Martinez (2014)
4 The Wage Share
Changes in the functional distribution of income are the end result of the process of cost-
push or conflict inflation. They depend on the behavior of nominal profit margins (of both
monitored and free goods and services), the growth of money wages and labor
productivity as well as the changes in the rates of interest and the exchange rate40
. We
can thus relate the changes in the dynamics of cost inflation to the observed changes in
the functional distribution of income. Figure 17 describes the evolution of the wage share
in Brazil, showing that it fell gradually from mid-1990 until 2004, when the trend is
reverted and the wage share starts rising until 2011.
40
From the relation between cost-push inflation and changes in the functional distribution of income, see
Serrano (2010b) and Stirati (2001).
-20%
-15%
-10%
-5%
0%
5%
10%
15%
1T01
3T01
1T02
3T02
1T03
3T03
1T04
3T04
1T05
3T05
1T06
3T06
1T07
3T07
1T08
3T08
1T09
3T09
1T10
3T10
1T11
3T11
1T12
3T12
1T13
3T13
Nominal wage growth - Service sector Inflation - Services
24. 24
Figure 17 – Wage Share
Source: SCN/IBGE.
In 2000-2003, the wage share fell as average money wages grew less than overall inflation
(despite very low growth of productivity). The higher inflation was a result of a strong
external shock (due to the exchange rate devaluations) together with a high inflation of
monitored goods and services (which grew more than overall inflation) that increased the
markups of monitored goods and services plus a higher level of real rate of interest, which
appears to have allowed also higher markups for “free prices” (Table 1).
After that, from 2004-2009, the wage share started rising since the productivity of the
economy grew less than real wages (the rate of growth of money wages grew faster than
the average overall inflation). The lower overall inflation was a result of very low tradable
goods inflation - due to the process of exchange rate appreciation (in spite of very fast
growth of international prices in dollars) - and institutional changes in monitored prices’
contracts, which reduced some markups (and the sensitivity of these in relation to the
exchange rate) and lowered annual monitored goods and services inflation (very close to
the rate of overall inflation). A downward trend of nominal and real interest rates also
helps to explain this shift in income distribution.
Finally, in the years of 2010-2014, despite a higher level of tradable goods inflation, real
wages continued to grow at the same pace (faster than overall productivity). This was
possible because authorities held back the increase of some monitored prices, resulting in
monitored price inflation lower than overall inflation. The real interest rate was also even
lower than in the previous period. So, although our National Accounts data series ends in
2011, the rise of the wage share seems to continue in the years 2012-2014.
5 Final remarks
In this paper we discussed the dynamics of Brazilian inflation as a cost-push phenomenon,
focusing on the evolution of the three main direct determinants of the trend of the
28%
29%
30%
31%
32%
33%
34%
35%
36%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
WAGES/GDP (National Accounts ref. 2000) WAGES/GDP (National Accounts ref. 2010)
25. 25
Brazilian inflation process, namely: a) tradable dollar prices and exchange rates, b)
monitored prices and c) nominal wages and productivity growth.
In relation to inflation of tradable goods in local currency, we argued that the monetary
authority can be successful in controlling domestic inflation when they can manage the
exchange rate and to appreciate it in order to neutralize the increase in international prices
in US dollars, but things become much more difficult when the monetary authority is
unable (or unwilling) to appreciate the nominal exchange rate, either because of adverse
external conditions or for domestic political reasons. In what regards monitored prices,
the policy of changing some price contracts between 2004 and 2006, taken together with
other discretionary measures taken later helped Brazil lower the rate of monitored price
increases and get inflation near the central target in the years 2004-2009. Further
discretionary measures to slow down the increase of monitored prices helped keep
inflation just below the upper bound of the acceptable range since 2010, in spite of the
higher increases in tradable prices in local currency and stronger wage cost pressure,
mainly in the service sector in the latter period.
Concerning the evolution of the nominal wages, we observed that a seemingly structural
amount of wage inflation due to the substantial increase in workers’ bargaining power
arose in Brazilian economy since 2006. The wage increases were initially accommodated
by exchange rate revaluation, but this policy was abandoned more recently under
complaints from firms in the tradable sectors having difficulty in passing on wage cost
increases to prices. More recently, a policy of delaying adjustments of monitored prices
prevented the large exchange rate devaluations from either accelerating inflation too
much and/or reducing real wages.
For those who did not want the process of increasing real wages and improvement of the
personal and functional income distribution to be reversed, a strong commitment to
technological and industrial policies (that would lead to structural improvements and
competitiveness of our economy) together with some sort of broad “incomes policy” of
controlling monitored prices (and also other service prices in which the government has
direct or indirect influence41
, like rents, education and health care)42
would be necessary.
Only with something like this in place would we have a basis for a progressive and
credible policy of negotiated nominal wage moderation, that could keep inflation from
accelerating and generating instability, while at the same making sure the foreign
exchange constraint would not reappear to hinder growth. But such an approach would
require a lot of planning and public investment, things that have been in practice largely
41
Directly, the federal government could regulate contracts of private education and rents to prevent the
chosen price index to adjust price contracts could be higher than the official overall inflation. More
indirectly, according to Medeiros (2015a), the provision of public health and education as well as urban
infrastructure and public transport could tame the conflict over distribution and avoid that the great part of
the workers living cost should be guaranteed only by nominal income. This seems to make sense since after
analyzing the evolution of consumption patterns in Brazil in 2000s, Medeiros (2015a) showed that the
increase in income of the bottom of the distributive pyramid where accompanied by the increased
percentage of their income compromised with the acquisition of private education and health care services
as well as automobiles.
42
In the whole period (2000-2014) remained higher than official overall inflation . Also the real estate rents
are a cost push factor of the inflation in service sector (like restaurants, private schools, personal services,
etc) according to Summa and Braga (2014) and Dos Santos (2014).
26. 26
abandoned by the Brazilian government since 2011 (due to private sector complaints of
excessive state interference in the economy) (see Serrano &Summa (2015b)).
On the other hand, the substantial improvement in the bargaining power of workers, a
result of relatively fast growth with social inclusion from 2004 to 2010, led to steady
increases in real wages (starting from quite low levels in 2006) and a gradual increase in
the wage share. As there was no really binding longer term foreign exchange constraint
on economic growth after 2003 (in spite of the 2008-9 world crisis) and the socially
inclusive growth pattern actually tends to stimulate private investment through the
expansion of the internal market, the political reaction against these changes in
distribution (and more generally the marked improvements in social conditions in Brazil)
was bound to take the form of attempts to make the government shift the orientation of
macroeconomic policies in order to dismantle this growth regime. This is not too
different from what happened at the end of the Golden Age in many developed economies
in the early 1970s.43
Interestingly enough, more recently there was an apparently completely irrational further
shift in the orientation of economic policy in Brazil starting in January 2015. The new
policy consists, simultaneously, of allowing further major exchange rate devaluations,
announcing large increases in monitored prices, with the government suspending the
pursuit of the inflation target for this year (curiously with virtually no complaints from
entrepreneurs or the media), together with a shift to a strongly contractionary monetary,
credit and fiscal policy in an economy that is already in recession. But the new policy
orientation makes perfect sense, and is in fact strictly necessary, when seen as the
beginning of an attempt to weaken the bargaining power of labor and the institutional
capacity and power of the Brazilian State44
(and help to create the climate necessary for
conservative reforms on labor laws and the welfare state pass through congress). It is clear
that these new policies, inconsistently justified by an embarrassing majority of Brazilian
economists, including many who call themselves Keynesian, heterodox and even
progressives, with a presumed need to restore the “confidence” of internal and external
investors45
, will entail a deep and possibly prolonged recession, and risks condemning
the economy to a path of near stagnation, as acknowledged both by the Economist(2015)
and the IMF(2015) (who both nevertheless also support these new policies).
Ironically, we can a find a similar interpretation of what is really at stake now in Brazil
in the words of one of the very few lucid (though politically conservative) economists in
the main Brazilian opposition party, PSDB. Mr. Mendonça de Barros (2015) pointed out
in an interview in January 2015 that president Dilma Roussef was reelected on a leftist
progressive platform and immediately shifted to the conservative economic policy
proposed of the opposition, appointing a Chicago-trained economist (and a major PSDB
43
See Kalecki(1943), Garegnani et alli(2006), Serrano(2004).
44
It is beyond the scope of this paper to study, but it is interesting anyway to notice, the happy
coincidence between the interests of those who want to weaken the bargaining power of labor and those
(in Brazil and abroad) who really do not want the Brazilian State to become a relevant Geopolitical player
as a regional power, a risk that was real at least before 2011.
45
Bresser-Pereira (2015) argues the new policies are “strange but unavoidable”. And the new minister of
Planning, Barbosa-Filho (2015) said that “As paradoxical as it is, this new strategy is the first step for the
recovery of growth . In spite of the negative impact that it might have in the short run, [the fiscal adjustment]
is highly necessary. Growth depends on investment and investment depends on a stable macroeconomic
scenario”
27. 27
policy consultant) as Minister of Finance. Mendonça de Barros (2015) argues: “After a
long period of rapid growth, unemployment rate reached 4.6%. There are horrible
pressures in the labor market. Unions, as was expected, took advantage of the situation to
impose wage increases and social gains, which increased the cost faced by firms and
created a dramatic situation in the industry. What she [Dilma Rousseff] must do – and the
new policy is already doing is to make the labor market more flexible. In other words, to
generate some unemployment. This is already happening in the automotive sector. Unions
will became weaker and negotiate in more reasonable terms.”
But he warns: “in order to do it, the economy will not grow for two years. But it is
necessary to be careful not to ´spill the polenta [angu, in Portuguese]´ and generate a fall
in consumption greater than is socially acceptable. Common sense will be important”.
Mr. Mendonça de Barros closes his interview saying that he is “optimistic”. But, perhaps
luckily for the country in the long run, there is now in Brazil an incredible lack of this
“common sense”. The new reactionary policies are being pursued with the usual fervor
of new converts (by the president of the country and most of the economic team) which
shows itself mostly clearly in the amazing lack of proper attention to both technical and
political realities.46
The “angu” is already beginning to spill.
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Table 1 – Average annual nominal rates of change
2000-
2003
2004-
2009
2010-
2014
2000-
2014
Prices
Food and Beverages 14.2% 4.9% 8.4% 8.1%
Industrial goods 7.9% 3.9% 3.5% 4.7%
Services 7.2% 6.5% 8.8% 7.3%
Monitored 12.1% 5.3% 4.0% 6.9%
Overall Inflation 8.8% 5.2% 6.1% 6.4%
Wages
Overall wages 2.9% 8.4% 8.9% 7.4%
Manufacture industry 4.1% 8.4% 8.9% 7.8%
Service sector -0.1% 7.3% 8.3% 6.0%
Agriculture 5.7% 10.9% 10.4% 10.7%
Minimum wage 16.0% 12.3% 9.5% 12.5%
Productivity
Agriculture 7.1% 3.0% 8.6% 5.1%
Manufacturing Industry
(PIM/PIMES) 2.2% 3.4% -0.8% 1.6%
Serviços -0.9% 1.3% 2.4% 0.9%
Total 0.0% 1.2% 3.3% 1.3%
Tradable goods in
local currency
Commodities (IBC-Br) 20.4% 1.5% 6.8% 8.1%
Imports 20.3% 0.8% 4.3% 6.7%
Exports 18.7% 2.7% 6.9% 8.3%
All Commodities (FMI) 30.2 4.6% 9.2% 12.8%
Real Interest Rate Real Interest Rate 9.6% 8.5% 3.5% 7.1%
(1)Overall inflation from IPCA/IBGE; (2) Monitored prices inflation from BCB; (3)
“Food and Beverages”, “Industrial goods” and “services” inflation from Martinez (2014)
(time series goes until dec. 2013); (4) Overall and sectorial nominal wages from
MTE/CAGED, average nominal wage (admission and termination) (time series goes until
dec. 2013); (5) Nominal minimum wage from MTE; (6) Agriculture, Services and
productivity of the economy from SCN/IBGE, calculated as Value Added/Employed
Workers, deflated by sectorial deflators (Fevereiro and Freitas (2015)) (data goes until
2011); (7) productivity of manufacturing industry calculated as physical production of
manufacturing industry (PIM/IBGE) divided by working hours in industry
(PIMES/IBGE); (8) IC-Br from BCB; (9) Import and Export in R$ calculated as Import
and Export prices in US$ from FUNCEX times nominal exchange rate (BCB); (10) All
Commodities prices in US$ from IMF times nominal exchange rate (BCB); (11) Real
interest rate as yearly average nominal selic (BCB) deflated by IPCA/IBGE;
34. 34
Table 2 – Labor Market, Institutional and policy variables and real wage growth
Labor market 2001-2005 2006-2014
Formal Employment (average, millions) 1 1.2
Unemployment rate 11.3 7.1
Labor Force (PEA) 3.0% 1.2%
Working age population (PIA) 1.9% 1.3%
Labor informality rate 53.9% 48.1%
Institutional and policy Variables 2001-2005 2006-2014
Real minimum wage 5.3% 5.2%
Number of benefited workers (million) -unemployment
benefit and "abono salarial'
7.8 16.3
Public Social Transfers 6.3% 5.7%
Workers Bargaining Power 2001-2005 2006-2014
Turnover Rate 43.7% 50.3%
Strikes (number) 331 491
Strikes (thousand hours) 19 44
Percentage of workers with real gains 43.8% 86.0%
Real Wages 2001-2005 2006-2014
Manufacturing Industry -2.3% 3.3%
Construction Industry 0.0% 3.8%
Commerce -1.5% 2.9%
Services -5.3% 2.3%
Agricuture 1.8% 5.1%
Total -3.2% 3.1%
Workers average income -2.4% 3.2%
(1) Formal Employment CAGED/MTE; (2) Unemployment rate, Labor force and
working age PME/IBGE (beginning 2002); (4) Labor Informality rate PNAD/IBGE-
IPEA/IPEADATA; (5) Real minimum wage = nominal minimum wage (MTE) deflated
by IPCA/IBGE; (6) Number of benefited workers: MTE (data goes until 2012) see Ibarra
(2013); (7) Public Social Transfers from DIMAC/IPEA; (8) Turnover rate RAIS/DIEESE
(until 2011) see Ibarra (2013); (9) Strikes – Number and hours from SEADE/DIEESE;
(10) Percentage of workers with real gains form SEADE/DIEESE; (11) total and sectorial
real wages: Overall and sectoral nominal wages from MTE/CAGED, average nominal
wage (admission and termination) deflated by IPCA/IBGE (time series goes until dec.
2013); (12) Workers average income form PME/IBGE (beginning in 2003).