Overcoming the "impossible trinity": towards a mix of macroeconomic policy instruments for sustaining economic development in Brazil

Nassif, André

doi:10.1590/s0101-31572011000500023

Cited by 3 publications

(4 citation statements)

References 12 publications

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“…However, taking into account that, according to the Kaldor-Verdoorn estimated coefficient, its manufacturing industry operates under dynamic economies of scale, there is still time to redirect the economy to a process of catching up. To achieve this goal, the Brazilian government needs to be well succeded in adopting a fine coordination between the long-term policies (such as industrial and technological policies, infrastructure and education policies, among others) and the short-term macroeconomic policies (especially the monetary, fiscal and exchange rate policies; see Nassif, 2011).…”

Section: Estimating the Income Elasticity Of Demand For Brazilian Expmentioning

confidence: 99%

Structural change and economic development: is Brazil catching up or falling behind?

Nassif¹,

Feijó²,

Araújo

2014

CAMECO

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We present a Kaldor-Thirlwall theoretical and empirical framework on the basic driving forces of the behaviour of productivity and economic development in the long-run. From the Kaldorian view, we anchor on the hypothesis that, by operating under static and dynamic economies of scale, the main sources of the growth of productivity of the economy as a whole come from the manufacturing sector. Yet, according to the so-called Thirlwall's Law, for a country to prevent from facing balance of payments contraints to growth in the long run and successfully catch up with the levels of income per capita and well-being of developed countries, it must maintain an income elasticity of demand for exports above the income elasticity of demand for imports. Based on these main hypotheses and some stylised facts observed and pioneered by Kaldor, we show some empirical evidence based on both descriptive statistics and econometric regressions for Brazil between 1970 and 2010. There are at least four clear indicators to suggest that Brazil has entered into a process of early de-industrialisation: i) the sharp drop in participation of the Brazilian manufacturing industry in total value added in the last decades; ii) its declining average yearly growth rate of labour productivity since the end of the 1990s; iii), the dramatic augmentation of the technological gap in all subsectors of the manufacturing industry, classified by technological intensity, since the end of the 1990s and; iv) the significant trade deficits in the manufacturing subsector of more technological intensity between 2006 and 2008. In addition, since our econometric estimates also show that there was a dramatic increase in the income elasticity of demand for imports (from 1.97 to 3.36) and a decrease in the income elasticity for exports between 1999 and 2010, compared with the 1980-1998 period (from 1.36 to 1.33), we can conclude that Brazil has already embarked on a trajectory of falling-behind and has been facing balance of payments constraints to growth in the long run. However, since our econometric estimation of the Kaldor-Verdoorn coefficient revealed that the Brazilian manufacturing industry operates under dynamic economies of scale, this result means that the Brazilian manufacturing industry has, in principle, potential to sustain economic growth in the long run. All these results have important economic policy implications. The most important is that there is still time to revert both the early de-industrialisation and falling behind path in favour of a catching up trajectory in the Brazilian economy, since there is a fine coordination between the long-term policies (industrial and technological policies, infrastructure and education policies, among others) and the short-term macroeconomic policies (monetary, fiscal and, especially, exchange rate policies) oriented to boost the technological content of both Brazilian manufacturing goods and exports.

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Section: Estimating the Income Elasticity Of Demand For Brazilian Expmentioning

confidence: 99%

Structural change and economic development: is Brazil catching up or falling behind?

Nassif¹,

Feijó²,

Araújo

2014

CAMECO

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“…Theoretically, according to the formal model of Trilemma, uncovered Interest Rate Parity leads to currency arbitrage activities. The latter reflects any change in exchange rates between two countries totally on nominal interest rate differential between these two countries in case of ignoring risk premium (Nassif, 2011). Accordingly, in case of having stable exchange rates and capital openness, there is opportunity to have only partial monetary autonomy as the monetary policy is used to support exchange rate stability.…”

Section: A Review On the Validity Of Trilemmamentioning

confidence: 99%

“…Following Bretton Woods system, the focus was on monetary autonomy and exchange rate stability at the expense of capital openness (Obstfeld et al, 2004). Nassif (2011) stated that following financial crises in Asian countries, Mexico and Russia during 1990s, several developing countries adopted fixed or semi-fixed exchange rate systems. Additionally, they enhanced capital openness.…”

Section: A Review On the Validity Of Trilemmamentioning

confidence: 99%

“Impossible Trinity” effects on Macroeconomic performance in Non-oil Arab Economies: Evidence from Egypt, Jordan, Lebanon, Morocco, and Tunisia

Ezzat¹

2023

المجلة العلمیة للدراسات والبحوث المالیة والتجاریة

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Monetary policy autonomy, exchange rate stability and free capital mobility are critical macroeconomic goals for all countries. However, Mundel-Fleming's impossible trinity hypothesis states that the extreme cases for these three goals cannot be targeted simultaneously. Despite the multiplicity of literature focused on testing the validity of impossible trinity, few empirical studies focused on its impact on macroeconomic performance. Neither these empirical studies nor the theoretical framework agreed on the validity of impossible trinity or its impacts on macroeconomic performance, particularly in developing countries. This study tests mainly the impact of impossible trinity indices on macroeconomic performance. The study uses deductive approach applied on five Non-oil Arab Economies using panel macroeconomic data. Two models are estimated for the period 1977-2021 using system generalized method of moments. Results confirmed the dynamic nature of macroeconomic performance, the validity of impossible trinity in sample countries and the significance of impossible trinity on affecting macroeconomic performance. More specifically, output volatility and inflation rates decrease by having greater capital openness and greater exchange rates stability. Inflation rate only can be reduced by greater monetary autonomy. Supportive policies are proposed to effectively improve macroeconomic performance relying on impossible trinity.

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“…1 It is worth noting that Brazilian economic authorities misjudged the gravity of the financial crisis in USA and the Brazilian Monetary Committee of the Brazil's Central Bank, differently of most central banks in the world, kept unchanged the SELIC in 13.75 per cent per year between September 2008 and December 2008, despite the sharp drop of commodity prices and strong downturn in the Brazilian monthly manufacturing production (Nassif, 2011).…”

mentioning

confidence: 99%

Changes in financial regulation and the Brazilian economy: comments on 'The evolution of financial regulation before and after the crisis'

Feijó¹,

Lamônica²

2014

REUFF

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Overcoming the "impossible trinity": towards a mix of macroeconomic policy instruments for sustaining economic development in Brazil

Cited by 3 publications

References 12 publications

Structural change and economic development: is Brazil catching up or falling behind?

Structural change and economic development: is Brazil catching up or falling behind?

“Impossible Trinity” effects on Macroeconomic performance in Non-oil Arab Economies: Evidence from Egypt, Jordan, Lebanon, Morocco, and Tunisia

Changes in financial regulation and the Brazilian economy: comments on 'The evolution of financial regulation before and after the crisis'

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