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Economic depression in Brazil: the 2014-2016 fall

Brinca, Pedro and Costa-Filho, João (2021): Economic depression in Brazil: the 2014-2016 fall.


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What is behind the economic depression Brazil experienced within 2014-2016? Using a synthetic control estimations we find that its roots are domestic. With that in mind, we apply the business cycle accounting method and find that the episode was driven by the efficiency wedge. The econometric evidence reveals that the public development bank outlays have a positive (negative) impact in the short (long) run in the efficiency wedge. A dynamic general equilibrium model with financial frictions and a public development bank is able to reproduce the dynamics of output during the crisis.

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