Assessing Brazil’s Fiscal Deficit Financing Strategy during the COVID-19 Pandemic

Abstract

The purpose of this paper is to analyze the financial channels to finance Brazil's fiscal expansion during the COVID-19 pandemic. We emphasize the changes in the financing conditions of Brazil's fiscal deficit, showing that an increase in government's expenditures resulted in the expansion of Brazil's monetary base and in Brazil's Central Bank open market operations. Moreover, we developed a financial agent model to demonstrate how the transmission mechanisms led to the monetary financing of Brazil's fiscal strategy during the COVID-19 pandemic.