Mohabbat, Khan A.
B.S. (Bachelor of Science)
Department of Economics
The macroeconomic policies undertaken by Brazilian policymakers during the 60’s, 70’s, 80’s, and 90’s—namely high growth of money supply, huge budget deficits, and the excessive use of inflation tax—created an inflation crisis comparable to Germany’s hyperinflationary period. Consequently, the effects of high inflation on different Brazilian economic variables have become interesting and challenging subjects to macroeconomists. This paper attempts to describe the effect of high inflation on output in Brazil between 1975 and 2002. By running a simple linear regression model, I find that, unlike many other studies, there is a positive relationship between inflation and output in Brazil during this period. More specifically, the results suggest that a 1% increase in average inflation produces a 0.0066% increase in output. This result is possible due to the Brazilian government’s use of inflation to promote growth (Tobin Effect). Furthermore, this action by the government is responsible for the enormous income inequality found in Brazil.
Bento, Roberto Nepomuceno, "The relationship between high inflation and output in Brazil from 1975 to 2002" (2004). Honors Capstones. 1263.
Northern Illinois University
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