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Dynamic Structural Models and the High Ination Period in Brazil: Modelling the Monetary System

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  • Wilson Luiz Rotatori Correa

    (Universidade Federal de São João del Rei)

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    Abstract

    In this paper we develop a linear, structural, dynamic, econometric model for the high ination period in Brazil. The main goal is to obtain a parsimonious model that accounts for a complex dynamic present in the monetary system during the period describing therelationships among output, ination rate, interest rates and real money. We start the analysis after the Cruzado plan cast in 1986 following a progressive strategy in deriving the econometric model. The results show that we can identify a long run money demand equation and the model describes parsimoniously and in detail the relationship among the variables despite all the instability present in the second half of the 1980's in Brazil with special attention to the role played by nominal wage ination in determining the dynamics observed in price ination.

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    Bibliographic Info

    Article provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its journal Economia.

    Volume (Year): 10 (2009)
    Issue (Month): 1 ()
    Pages: 69-100

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    Handle: RePEc:anp:econom:v:10:y:2009:i:1:p69-100

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    Related research

    Keywords: VAR; Cointegration; Money Demand; Simultaneous Equation Models;

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    References

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    1. Engsted, Tom, 1993. "Cointegration and Cagan's Model of Hyperinflation under Rational Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(3), pages 350-60, August.
    2. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, American Economic Association, vol. 69(2), pages 108-13, May.
    3. Cati, Regina Celia & Garcia, Marcio G P & Perron, Pierre, 1999. "Unit Roots in the Presence of Abrupt Governmental Interventions with an Application to Brazilian Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(1), pages 27-56, Jan.-Feb..
    4. Rossi, JoseW., 1989. "The demand for money in Brazil : What happened in the 1980s?," Journal of Development Economics, Elsevier, Elsevier, vol. 31(2), pages 357-367, October.
    5. Hendry, David F & Doornik, Jurgen A, 1994. "Modelling Linear Dynamic Econometric Systems," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 1-33, February.
    6. HENRY, David F. & RICHARD, Jean-François, . "On the formulation of empirical models in dynamic econometrics," CORE Discussion Papers RP -502, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Gerlach, Stefan & Nadal de Simone, Francisco, 1985. "A money demand equation for Brazil : Comments and additional evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 18(2-3), pages 493-501, August.
    8. Durevall, Dick, 1998. "The Dynamics of Chronic Inflation in Brazil, 1968-1985," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 16(4), pages 423-32, October.
    9. Cardoso, Eliana A., 1983. "A money demand equation for Brazil," Journal of Development Economics, Elsevier, Elsevier, vol. 12(1-2), pages 183-193.
    10. Feliz, Raul Anibal & Welch, John H., 1997. "Cointegration and tests of a classical model of inflation in Argentina, Bolivia, Brazil, Mexico, and Peru," Journal of Development Economics, Elsevier, Elsevier, vol. 52(1), pages 189-219, February.
    11. Calomiris, Charles W & Domowitz, Ian, 1989. "Asset Substitution, Money Demand, and the Inflation Process in Brazil," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 21(1), pages 78-89, February.
    12. Soren Johansen, 2002. "A Small Sample Correction for the Test of Cointegrating Rank in the Vector Autoregressive Model," Econometrica, Econometric Society, Econometric Society, vol. 70(5), pages 1929-1961, September.
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