Increased Risks and a Depreciating Exchange Rate

BRAZIL ECONOMICS - Report 04 Sep 2013 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
Executive Summary In response to the 2008 crisis, many countries abandoned the precepts of prudence and adopted highly expansionary fiscal policies along with a strong dose of monetary accommodation. This brought higher inflation and current account deficits, the latter of which became too large in relation to capital inflows with the change in growth perspectives in the United States. These same countries, among them Brazil, are now facing rising risk premiums and sharp currency depreciations. The prescription in cases such as this is to reverse the fiscal policy course and restore the nec...

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