The selic rate for fiscal policy and reference


The Selic rate came down sharply from mid-2003 and during much of 2004, and from the last
quarter of 2008 to mid-2009. It then held steady at 8.65% until the first quarter of 2010 (subprime
mortgage crisis). From mid-2011 to mid-2013, the Selic declined considerably, in the context of a high
rate of inflation, around 6%. Although the interest rate then rose until the end of 2013 and remained
relatively stable in 2014, this rise was evidently not enough to slow the inflation rate. This may suggest
that monetary policy could have been more active, as these are indications of a passive monetary policy.
The empirical results presented suggest that, in the ex post analysis, there are indications of
coordination or attempted coordination between fiscal and monetary policies, as well as signs of lack of
coordination between them, especially when there is a clear conflict of interest between the two. As an
example of lack of coordination between fiscal and monetary policies, in mid-2013 the Central Bank of
Brazil began to reverse its successive cuts in the Selic rate and to gradually increase it to try to reduce
inflation. At the same time, the federal government continued to reduce the primary surplus in order to
boost economic activity, which put upward pressure on inflation. The results of this conflict of interest
between economic policies were recession, fiscal deterioration and high rates of inflation.
VII. Final remarks
This article has evaluated the monetary and fiscal policies implemented in Brazil in the period between
November 2002 and December 2015.

 In this context, considering that monetary and fiscal policy rules
in Brazil may have undergone different regimes, the present study used the Leeper model (1991 and
2005) to establish the chronology of policy rules in terms of their active or passive nature.
Policy rules are estimated by means of a Markov-switching model in which the regimes are
generated endogenously. The results support the affirmation that fiscal dominance occurred in 2010
and between 2013 and 2014. Monetary dominance obtained for much of 2003 and in the period
2005–2007. During the rest of the period, monetary and fiscal policies were seen to be conducted
sometimes actively (2015) and sometimes passively (end-2003, 2004, 2008, 2009, 2011 and 2012).
CEPAL Review N° 135 • December 2021 99
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