Inflation and Finance: Evidence from Brazil

In this paper we examine the impact of inflation onfinancial devel- opment in Brazil. The data available permit us to cover the eventful period between 1985 and 2002 and the results-based initially on time series and then on panel time series TN data and analysis, and ro- bust for different estimators, specifications and financial development measures-suggest that high and erratic rates of inflation presented deleterious effects onfinance at the time. The main policy implication arising from the results is that poor macroeconomic performance can only have detrimental effects to finance, a variable that is important for directly affecting, e.g. economic growth and development, and in- come inequality. Therefore, low and stable inflation is a necessaryfirst step to achieve a more inclusive and active financial sector with all its attached benefits. (JEL: E31, E44, O11, O54).