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Influence of Exchange Variation and Demand Conditions in the Determination of IPCA in Brazil

Author

Listed:
  • Erica Oliveira Gonzales

    (Maring¨¢ State University)

  • Allan Silveira dos Santos

    (Bras¨ªlia University)

  • Eliane Cristina de Ara¨²jo

    (State University of Maring¨¢)

Abstract

The objective of this paper is to analyze the exchange rate pass-through in Braziland the importance of demand pressures on prices in the period after the implementation of the inflation-targeting regime. The methodology used was the Vector Error Correction Model (VECM), between three periods January 1999 to May 2011. The results show a high degree of inertia in all periods. Furthermore, they show that when neglecting the inertia, the exchange was the main determinant of price variation in the first period, while in the second period the main causes of inflationary pressures were demand pressures. The results also show that, in the Brazilian case, a significant devaluation in a short period of time can be dangerous to the stability of prices.

Suggested Citation

  • Erica Oliveira Gonzales & Allan Silveira dos Santos & Eliane Cristina de Ara¨²jo, 2014. "Influence of Exchange Variation and Demand Conditions in the Determination of IPCA in Brazil," Transnational Corporations Review, Ottawa United Learning Academy, vol. 6(1), pages 58-70, March.
    • Handle: RePEc:oul:tncr09:v:6:y:2014:i:1:p:58-70
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