Population: 198 millionGDP: US$1.5 trillionCurrency: Real
Policy and Economic Outlook
The appropriate domestic policy for Brazil is a combination of monetary and ﬁscal thathave an offsetting effect on domestic interest rates.
The appropriate domestic policy for Brazil is expansionary.The domestic policy analysis examines the relationship between real gross nationalproduct and inﬂation rates. Using a historical 15 year average, an appropriate target isset. Based on the country
s economic cycle: emerging, transitionary, developed, etc.; arange is around the target. In this case, Brazil is a large emerging market that requiresapproximately 6% inﬂation to maintain its utilization potential of 6% annual growth. Thetarget range is set at plus or minus 2% as a developing country. When the real GDP andinﬂation rate fall outside of the target zone, a governmental policy shift is indicated torecover the target. The 6% GDP in this case represents the absolute supply, or capacity,of the country
s economy.Brazil has experienced asigniﬁcant slowdown in GDP in2009, with growth dropping belowzero and recovering to about zero.This signiﬁcant shift has movedannual GDP growth well outside ofthe target Zone. Since utilizationgrowth (0%) is much lower thancapacity (6%), the appropriategovernment policy is anexpansionary policy.
The appropriate international policyfor Brazil is to increase its interest rates and appreciate the Real.The international policy analysis examines the relationship between interest rates andcurrency rates, and looks to the countries balance of payments with all other nations to
Range +/- 2%Target 6, 6 (15Y avg.)
Brent Williams -