In this monograph, we seek to study the impacts of the loss of credibility of fiscal and monetary policies on the Brazilian business cycle. To this end, we conduct an extensive literature review not only on the definition of credibility in macroeconomics but also on the measurement of monetary policy and its debate in Brazil. In addition, we debate the possibility of building an index of fiscal policy credibility. Secondly, we do an extensive analysis of institutional deterioration, using political economy models, and its impact on the disanchoring of agents expectations. Finally, we evaluate the impacts of credibility loss in a simple three equation model. Our identification strategy is based on a Factor Augmented Vector Autoregressive Model.