Since 2014
Inflation Dynamics in Brazil: The Case of a Small Open Economy
Brazilian Review of Econometrics
View Archive Info| Field | Value | |
| Title |
Inflation Dynamics in Brazil: The Case of a Small Open Economy
Inflation Dynamics in Brazil: The Case of a Small Open Economy |
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| Creator |
Areosa, Waldyr Dutra
Medeiros, Marcelo |
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| Description |
This paper derives and estimates a structural model for inflation in an open economy. The model represents the standard new-Keynesian Phillips curve (NKPC) and the hybrid curve proposed by Woodford (2003) and Gal´ı and Gertler (1999) as special cases. We present two sets of estimates for the Brazilian economy, initially regarded as a closed economy and then as a small open economy. According to the recent literature, the model contemplates indexation to past inflation and a measure of marginal cost as relevant inflation indicators. Some of the results can be summarized as follows: (i) Brazil, when regarded as a closed economy, has a relatively higher level of nominal rigidity than that of the United States and Europe, and a high level of indexation as well; (ii) In an open economy with indexation, nominal exchange rate appreciation plus foreign inflation affects consumer inflation, and this effect becomes more intense with larger economic openness; (iii) There is a small direct impact of the variables associated with economic openness, with the sum of their coefficients being close to zero; (iv) However, the indirect impact is significant, consistently changing the weights associated with lagged inflation and the expected future inflation.
This paper derives and estimates a structural model for inflation in an open economy. The model represents the standard new-Keynesian Phillips curve (NKPC) and the hybrid curve proposed by Woodford (2003) and Gal´ı and Gertler (1999) as special cases. We present two sets of estimates for the Brazilian economy, initially regarded as a closed economy and then as a small open economy. According to the recent literature, the model contemplates indexation to past inflation and a measure of marginal cost as relevant inflation indicators. Some of the results can be summarized as follows: (i) Brazil, when regarded as a closed economy, has a relatively higher level of nominal rigidity than that of the United States and Europe, and a high level of indexation as well; (ii) In an open economy with indexation, nominal exchange rate appreciation plus foreign inflation affects consumer inflation, and this effect becomes more intense with larger economic openness; (iii) There is a small direct impact of the variables associated with economic openness, with the sum of their coefficients being close to zero; (iv) However, the indirect impact is significant, consistently changing the weights associated with lagged inflation and the expected future inflation. |
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| Publisher |
Sociedade Brasileira de Econometria
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| Date |
2007-05-01
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion |
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| Format |
application/pdf
application/pdf |
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| Identifier |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1575
10.12660/bre.v27n12007.1575 |
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| Source |
Brazilian Review of Econometrics; Vol. 27 No. 1 (2007); 131-166
Brazilian Review of Econometrics; v. 27 n. 1 (2007); 131-166 1980-2447 |
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| Language |
eng
por |
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| Relation |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1575/1020
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1575/1021 |
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