When we focus the analysis in the sectorial contributions fo

When we focus the analysis in the sectorial contributions for the aggregate industrial price index, it should be remarked that around 60% of the index variation in 2105 was due to higher prices of only four of the 23 investigated industrial activities (IBGE, 2016a, p. 8IBGE, 2016aIBGE, 2016a, p. 8). Fig. 3 shows how the prices of these activities closely followed the exchange rate over time.
Concluding remark Inflation targeting in Brazil has been applied since 1999, and in this paper, based on recent data on industrial producer index, we have argued about its appropriateness to control inflation subject to cost pressures. In particular cost pressures have been amplified in the recent period in response of the pass-through of exchange rate variations to inflation. The magnified response on the exchange rate pass-through can be seen as a result of the deepening of the deindustrialization process in Brazil, which increases the propensity to import of the industrial sector. It should be recalled that the structuralist literature has shown long ago that technological dependence, oligopolistic glucokinase and unequal international trade greatly contribute to a higher pass-through effect of the exchange rate in developing economies. The more recent debate about the new developmentalism has shown that the exchange rate is the most important macroeconomic price to be looked over by monetary authorities, because developing economies that are financially integrated tend to show an overvaluation trend of their currencies. The main reason is because monetary policy autonomy is greatly constrained by the dependence on capital flows, and as a consequence business cycles tend to be more severe in developing economies, narrowing their policy space. In this sense, our aim in this paper was, assuming that the inflationary process in Brazil should be understood as cost-push driven rather than demand pull driven, to present an estimate of the pass-through effect on industrial inflation from 2010 onwards. A general conclusion is that, different from the mainstream assumptions for open developed economies, stabilization policies in developing economies should consider that the use of the interest rate as the main instrument to control inflation may not be effective and impose a too heavy cost on the real side of the economy to overcome the inflationary process.
Introduction Credit constraint is a widespread market failure. Under asymmetric information, financial intermediaries provide less credit to firms with good projects but low net worth than would otherwise do with perfect functioning capital markets. The adverse consequences of this market failure are especially damaging to developing countries, because blastula inhibits entrepreneur capacity to make investments necessary to overcome backwardness, as evidenced by Banerjee and Duflo (2005). Moreover, there is broad evidence that removing credit constraints in fact enables firms to enhance their performance. For instance, Banerjee and Duflo (2014) showed that improving firms’ access to direct credit expands production without crowdingout with other forms of credit. In Brazil, private debt markets to firms are still to be fully developed, especially when it comes to long-term finance. According to CEMEC (2016), total credit (including bank-based and market-based debt) to non-financial firms amounted to 38.7% of GDP in 2015. Nevertheless, long-term outstanding private debt was only 5.8% of GDP. Needless to say that the small- and medium-sized firms, usually more credit constrained, have more difficulties in access to bond markets. Therefore, our investigation might help policy makers to understand where in the Brazilian economy credit restrictions are more severe. As a consequence, government policies should be able to alleviate these constraints more effectively and eventually boost private sector investments. Given this institutional framework, this paper tests whether Brazilian firms are credit constrained, and further investigates some qualitative properties of this restraint, considering the investment-cash flow model proposed by Fazzari et al. (1988). The main interest in this case is to verify the sensitiveness of a firms’ investment to cash flow and interpret it as credit constraint. Our main contribution to the existent literature consists in the use of a richer and still under exploited dataset, which enables us to assess different aspects undermined by previous research. Our dataset gathers balance-sheet information for more than 3000 manufacturing firms with characteristics that may affect the degree of credit constraints, for example, size, the participation in the Brazilian stock market and level of export’s sales. Understanding stock market participation as a “domestic” source of external investment’s funds and the level of export’s sales as a proxy for “foreign” source, once export revenue may be seen as a collateral to gain access to international financing, our results may be seen as a test if substitutes for banking funding are effective in alleviating credit constraints, which may be useful for guiding public policy in broader contexts.