Interaction between the Financial Market and Economic Policies: An Approach Based on the Crisis Caused by the COVID-19 in Brazil

Abstract

The COVID-19 has social and economic impacts, especially in emerging countries like Brazil. The Brazilian’s context was different from the rest of the world, because while the other countries have to manage social and economic crises, Brazil also had to manage a political crisis caused by the president Jair Bolsonaro. The study aimed to analyze the importance of the fiscal, monetary and foreign exchange policies adopted by the Brazilian government and its effect on the stock exchange. To analyze the impacts of the COVID-19 in Brazilian economy, a time series analyses was conducted with the Vector Autoregressive Model. The variables analyzed by the study were: government spending, basic interest rate, Ibo Vespa index and exchange rate. The result highlights the relevance of expansive fiscal policy as a positive driver for investment intentions in the financial market. Although this behavior is not easy to understand, an example that can support this result is the indirect purchase of government bonds through the Central Bank.