Economic growth and inflation in Brazil in the 1970s: A post Keynesian interpretation

The Brazilian economy in the 1970s experienced high rates of growth of aggregate output and high rates of inflation. To understand this phenomenon, it is necessary to study how behaviour and strategies are formed in an environment of price instability. The post Keynesian theoretical framework provides the tools required for this analysis as it incorporates the study of decision-making under non-probabilistic uncertainty. The empirical analysis shows that the remarkable performance of the Brazilian economy in the 1970s resulted from the effective economic policy management of the government. The foreign sector provided the resources for expansion, but at a cost of increasing the degree of vulnerability of the economy to external shocks. The empirical analysis, which demonstrates the merits of the post Keynesian methodology, is developed in two stages. The first identifies the special characteristics of the Brazilian economic environment and how portfolios changed according to the different phases of growth (1968-73, 1974-79 and 1980-82). The analysis brings out the continuities of each phase and shows that the presence of the State became stronger, as the degree of uncertainty in the economy increased. In the second stage a recursive econometric model is developed to simulate the behaviour of industrial prices and output. The main conclusions are reinforced by the results of the model