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The Positive Economics of Inflation in Brazil
Author(s) -
Blumenschein Fernando
Publication year - 1995
Publication title -
development and change
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.267
H-Index - 93
eISSN - 1467-7660
pISSN - 0012-155X
DOI - 10.1111/j.1467-7660.1995.tb00569.x
Subject(s) - credibility , economics , inflation (cosmology) , stalemate , politics , financial market , adaptation (eye) , fiscal policy , macroeconomics , monetary economics , finance , political science , theoretical physics , law , physics , optics
High and unstable inflation rates have prevailed in Brazil during the period 1985‐92. All attempts to stabilize the economy have failed and ‘living with inflation’ has become politically feasible. The structure of the financial market in general, and financial adaptation mechanisms in particular, have played a crucial role in implementing and maintaining this political‐economic option. Financial adaptation mechanisms sway the management of monetary and fiscal policies, with a direct influence on the credibility of macroeconomic policy announcements. More importantly, distributive asymmetries generated by those financial instruments, in association with differences in political motivation for different groups in the society, have created a stalemate regarding stabilization efforts. This article argues that, for the Brazilian case, the positive economics literature has failed to explain the inflationary phenomenon because it has not considered financial adaptation as an important linkage between political motivation of certain groups in the society and the correspondent desirable economic outcomes. The validation of social‐economic objectives of certain classes became an important raison d'être of financial adaptation. Consequently, change of inflationary regimes carries costs and benefits far beyond those implied by fiscal reform alone.