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Supply Shocks and Inflation Targeting

Author

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  • Fabio Kanczuk

    (FEA/USP)

Abstract

We construct a dynamic general equilibrium model, calibrated to the Brazilian economy, in which a fraction of the firms set prices one quarter in advance. The artificial economy simulations generate series consistent with real data and with a typical estimation of a structural inflation-targeting model. We argue that these structural models specifications are incorrect for not considering supply shocks. In contrast, our model can separate supply and demand shocks effects, in addition to being (potentially) robust to the Lucas’ Critique.

Suggested Citation

  • Fabio Kanczuk, 2003. "Supply Shocks and Inflation Targeting," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31st Brazilian Economics Meeting] b01, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    • Handle: RePEc:anp:en2003:b01
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    File URL: http://www.anpec.org.br/encontro2003/artigos/B01.pdf
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    References listed on IDEAS

    as
    1. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2000. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," Econometrica, Econometric Society, vol. 68(5), pages 1151-1180, September.
    2. Joel Bogdanski & Paulo Springer de Freitas & Ilan Goldfajn & Alexandre Tombini, 2002. "Inflation targeting in Brazil: shocks, backward-looking prices and IMF conditionality," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 358-384, Bank for International Settlements.
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    More about this item

    Keywords

    Brazil; Real Business Cycles; Sticky Prices;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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