The Aftermath of 2008 Turmoil on Brazilian Economy: Tsunami or 'Marolinha'?

Abstract

Financial events in 2008 had global impacts. We test whether U.S downturn had an impact on Brazilian economic activity and if it was unusual. We run policy ineffectiveness test (Pesaran and Smith (2014); Pesaran and Smith (2016)) and Chow test. The rejection of the null hypothesis in the first test shows that financial events had impacts on Brazilian economy whereas rejection in the second is an evidence of contagion. Our estimates suggest that Brazilian industrial production dropped -9.34% at annual rate basis from December 2007 till June 2009 compared to a scenario of no effect and -6,34% when compared to a scenario of no contagion.

Keywords: counterfactual analysis, structural change

JEL Classification: G01, C54