Fiscal costs of monetary policyindirect effects of an interest rate shock on Brazilian public net debt

Resumo

The paper estimates the fiscal cost of an increase in the Brazilian policy interest rate - the SELIC - by considering not only the direct effect on the yield of public bonds that are indexed to the SELIC, but also indirect effects on: (i) the yield of public bonds that are indexed to the exchange rate and inflation, and (ii) the stock of public net debt through adjustments in the value of international reserves measured in domestic currency. Projections are based on the estimation of the relationship between interest rates, exchange rates and inflation by means of a vector auto-regression. We conclude that the inclusion of such indirect effects has an ambiguous effect on the response of the implicit interest rate on public net debt to shocks in the SELIC, when adjustments in the value of international reserves are not considered. However, the inclusion of the latter amplifies the fiscal cost of a more restrictive monetary policy. These results call for a better coordination between monetary, fiscal and exchange rate policies in Brazil.

Ficha do documento

Tipo

Artigo científico

Ano

2016

Instituição

Editora 34

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

DOI

10.1590/0101-31572015v36n03a06

Identificador

oai:repositorio.fgv.br:10438/21161

Temas

EconomiaFinanças PúblicasMeio Ambiente

Palavras-chave

Brazilian public debt structureMonetary policyInterest rate-exchange rate nexusInternational reservesDebt sustainabilityEstrutura da dívida pública brasileiraPolítica monetáriaNexo juros-câmbioReservas internacionaisSustentabilidade da dívidaEconomiaDívida pública - Brasil