Theoretical Analysis and Empirical Evidence of Countercyclical Macroeconomic Policies Implemented during the Subprime and COVID-19 Crises: The Brazilian Case

Abstract

This article analyses, theoretically and empirically, the countercyclical economic policies, in particular the fiscal and monetary ones, implemented by the Brazilian Economic Authorities (BEAs) in response to the International Financial Crisis (IFC), 2007-2008, and the COVID-19 crisis, 2020. The main objective is to evaluate the effectiveness of those policies not only in times of economic growth, but mainly in periods of economic crisis. This idea is in line with the main arguments of Keynesian macroeconomics, which supports the theoretical framework of the article. The empirical analysis of the article shows the effects of fiscal (government spending) and monetary (interest rate) policies in the Brazilian economy between 1996 and 2020. Thus, it was estimated a MS-VAR model to analyze the impacts of fiscal and monetary policies in periods of economic growth and economic crisis. The main results indicate that the effects of fiscal and monetary policies are more pronounced during a period of economic crisis than in a situation of economic growth, supporting, thus, the Keynesian arguments that fiscal and monetary policies are able to affect the economic cycles.