DEPEP

Inflation Stickiness for the Brazilian Economy: A Study based on Rational Expectations

Email address: benjamin.tabak@bcb.gov.br

Abstract:
This paper aims to test the validity of the inflation stickiness hypothesis for the Brazilian economy. This is achieved modeling a vector autoregression which includes the GNP gap, inflation and the interest rate. The econometric approach is derived from the expenditure function for the economy and the supply curve of Fuhrer-Moore and incorporates the hypotheses of rational expectations and staggered wage contracts. The empirical evidence is that prices are rigid and that inflation reduction, via increase in interest rates, causes a significant reduction in production. As a byproduct of this analysis we suggest an optimal rule to determine interest rates for the Brazilian economy.

PDF file of paper: Not available.

Session: Applied Econometrics I

Time: Sunday, 8 July, 8am - 9:30am

Room: F