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Welfare cost of Inflation in Brazil: an approach with time-varying cointegration and Kalman filter

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  • Campos, Eduardo Lima
  • Cysne, Rubens Penha

Abstract

This paper compares the time-varying cointegration and the Kalman filter techniques to estimate the Brazilian money demand between 1996 and 2015. The estimation using Kalman filtering performs better and is subsequently used to calculate the welfare cost of inflation. Taking into consideration the time variability of the interest-rate elasticity during the period, the average welfare cost amounts to 0.24% of GDP, for an average annual inflation of 6.63%.

Suggested Citation

  • Campos, Eduardo Lima & Cysne, Rubens Penha, 2018. "Welfare cost of Inflation in Brazil: an approach with time-varying cointegration and Kalman filter," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 801, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    • Handle: RePEc:fgv:epgewp:801
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