The coordination of monetary and fiscal policies in Brazil and the New Macroeconomic Matrix

This article aims to analyse Brazil’s economic performance, particularly focusing on the coordination between monetary and fiscal policies from 2003Q1 to 2020Q4, with a special emphasis on the period known as the “New Macroeconomic Matrix” (NMM), from 2011Q1 to 2018Q2. To this end, the study employs a DSGE model, examining observed variables such as the nominal interest rate, the GDP, CPI inflation, and primary surplus. The main empirical results indicate a lack of coordination between monetary and fiscal policies. For instance: i) During the NMM period, increases in the Selic interest rate were not able to mitigate economic activity, at the beginning of a cycle, indicating that other forces (mainly fiscal policy) were acting in the opposite direction; and ii) A decline in Fiscal Results and an increase in Government Spending also indicate a discoordination of economic policies during the NMM period.