25% of nothing
• Those who had the time and
patience to go through BCB communication since the beginning of the easing
cycle have surely concluded that the main intellectual argument for its dovish
stance in terms of monetary policy has been the supposed “disinflationary bias”
stemming from the international scenario;
patience to go through BCB communication since the beginning of the easing
cycle have surely concluded that the main intellectual argument for its dovish
stance in terms of monetary policy has been the supposed “disinflationary bias”
stemming from the international scenario;
• Although more recent
communication has eschewed this particular expression, earlier versions of the
case for monetary easing upon the assumption that the impact of the external
turmoil would have an impact on the economy “equivalent to one fourth of the
impact observed during the international crisis of 2008/09”;
communication has eschewed this particular expression, earlier versions of the
case for monetary easing upon the assumption that the impact of the external
turmoil would have an impact on the economy “equivalent to one fourth of the
impact observed during the international crisis of 2008/09”;
• Though the Brazilian economy
was never even close to experiencing such, poor output growth in the past 4
quarters has been branded as vindication for BCB actions, as well as its
allegedly accurate reading of the international environment;
was never even close to experiencing such, poor output growth in the past 4
quarters has been branded as vindication for BCB actions, as well as its
allegedly accurate reading of the international environment;
• Yet, if it were the effects of
global deceleration that led to Brazilian slowdown, we should find evidence of
similar impacts on comparable economies, in particular other Latin American
commodity exporters;
global deceleration that led to Brazilian slowdown, we should find evidence of
similar impacts on comparable economies, in particular other Latin American
commodity exporters;
• The evidence, nevertheless,
begs to differ. Contrary to the observed in 2008-10, Brazilian growth rates
deviated substantially from those of its peers, an indication that the slowdown
in Brazil is not only (nor mainly) the result of a common external force, but
rather idiosyncratic (domestic) factors;
begs to differ. Contrary to the observed in 2008-10, Brazilian growth rates
deviated substantially from those of its peers, an indication that the slowdown
in Brazil is not only (nor mainly) the result of a common external force, but
rather idiosyncratic (domestic) factors;
• Building in previous research
we argue that the most relevant elements within domestic factors are those
supply related, mainly the recent developments in the labor market. As a matter
of fact, something between one fourth and one third of Brazilian growth since
2004 has come from the incorporation of unemployed workers, a positive, albeit
finite, process. As the economy approaches full employment, output growth must
converge to potential, which, given labor productivity growth estimates (around
1.5% per annum) and working age population growth, should be in the vicinity of
3% per annum;
we argue that the most relevant elements within domestic factors are those
supply related, mainly the recent developments in the labor market. As a matter
of fact, something between one fourth and one third of Brazilian growth since
2004 has come from the incorporation of unemployed workers, a positive, albeit
finite, process. As the economy approaches full employment, output growth must
converge to potential, which, given labor productivity growth estimates (around
1.5% per annum) and working age population growth, should be in the vicinity of
3% per annum;
• The implications for inflation
are straightforward: instead of disinflation we should have the accumulation of
inflationary pressures, so far offset by one-off events, which should still
play leading roles in 2013;
are straightforward: instead of disinflation we should have the accumulation of
inflationary pressures, so far offset by one-off events, which should still
play leading roles in 2013;
• If BCB continues waiting the
disinflationary bias to materialize, it is likely to be sorely disappointed,
but this should not change its monetary policy stance, keeping rates on hold
for a long time, probably until the final months of 2013.
disinflationary bias to materialize, it is likely to be sorely disappointed,
but this should not change its monetary policy stance, keeping rates on hold
for a long time, probably until the final months of 2013.
Lame.