Inflation and financial development : evidence from Brazil

Abstract

We examine the impact of inflation on financial development in Brazil, and the data available permit us to cover the period between 1985 and 2004. The results — based initially on time series and then on panel time series and panel data and analyses — suggest that inflation presented deleterious effects on financial development during the period investigated here. The main implication of the results is that poor macroeconomic performance has detrimental effects to financial development, a variable that is important for affecting, (e.g., economic growth and income inequality). Therefore, low and stable inflation, and all that it encompasses, is a necessary first step to achieve a deeper and more active financial sector with all its attached benefits.