IDEAS home Printed from https://ideas.repec.org/p/anp/en2003/b34.html
   My bibliography  Save this paper

Imperfect Rationality and Inflationary Inertia: a New Estimation of the Phillips Curve for Brazil

Author

Listed:
  • Angelo M. Fasolo

    (UFRGS)

  • Marcelo Savino Portugal

    (UFRGS)

Abstract

This paper presents some new estimates for the relationship between inflation and unemployment in Brazil based on a new Keynesian hypothesis about the behavior of the economy. Four main hypotheses are tested and sustained throughout the study: i) agents do not have perfect rationality; ii) the imperfection in the agents expectations generating process may be an important factor in explaining the high persistence (inertia) of Brazilian inflation; iii) inflation does have an autonomous inertial component, without linkage to shocks in individual markets; iv) a non-linear relationship between inflation and unemployment is able to provide better explanations for the inflation-unemployment relationship in the Brazilian economy in the last 12 years. While the first two hypotheses are tested using a Markov Switching based model of regime changes, the remaining two are tested in a context of a convex Phillips Curve estimated using the Kalman filter. Despite the methodological and estimation improvements provided in the paper, the impulse-response functions for the monetary policy presented the same properties shown in the literature that uses Brazilian data
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Angelo M. Fasolo & Marcelo Savino Portugal, 2003. "Imperfect Rationality and Inflationary Inertia: a New Estimation of the Phillips Curve for Brazil," Anais do XXXI Encontro Nacional de Economia [Proceedings of the 31st Brazilian Economics Meeting] b34, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
  • Handle: RePEc:anp:en2003:b34
    as

    Download full text from publisher

    File URL: http://www.anpec.org.br/encontro2003/artigos/B34.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-793, May.
    2. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May.
    3. Robert J. Gordon, 1997. "The Time-Varying NAIRU and Its Implications for Economic Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 11-32, Winter.
    4. Garcia, Rene & Bonomo, Marco, 2001. "Tests of conditional asset pricing models in the Brazilian stock market," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 71-90, February.
    5. David Barr & John Campbell, "undated". "Inflation, real interest rates and the bond market: a study of UK nominal and index-linked Government bond prices," CERF Discussion Paper Series 95-09, Economics and Finance Section, School of Social Sciences, Brunel University.
    6. Arturo Estrella & Frederic S. Mishkin, 1999. "Rethinking the Role of NAIRU in Monetary Policy: Implications of Model Formulation and Uncertainty," NBER Chapters, in: Monetary Policy Rules, pages 405-436, National Bureau of Economic Research, Inc.
    7. Guy Debelle & Douglas Laxton, 1997. "Is the Phillips Curve Really a Curve? Some Evidence for Canada, the United Kingdom, and the United States," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 249-282, June.
    8. Söderlind, Paul, 1995. "Forward Interest Rates as Indicators of Inflation Expectations," CEPR Discussion Papers 1313, C.E.P.R. Discussion Papers.
    9. Garcia, Rene & Perron, Pierre, 1996. "An Analysis of the Real Interest Rate under Regime Shifts," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 111-125, February.
    10. Christopher Ragan, "undated". "Deriving Agents' Inflation Forecasts from the Term Structure of Interest Rates," Staff Working Papers 95-1, Bank of Canada.
    11. Ball, Laurence, 1995. "Disinflation with imperfect credibility," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 5-23, February.
    12. Thomas Sargent & Noah Williams & Tao Zha, 2009. "The Conquest of South American Inflation," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 211-256, April.
    13. Roberts, John M., 1997. "Is inflation sticky?," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 173-196, July.
    14. Sims, Christopher A., 1992. "Interpreting the macroeconomic time series facts : The effects of monetary policy," European Economic Review, Elsevier, vol. 36(5), pages 975-1000, June.
    15. Ball, Laurence, 1994. "Credible Disinflation with Staggered Price-Setting," American Economic Review, American Economic Association, vol. 84(1), pages 282-289, March.
    16. Grant, Alan P. & Thomas, Lloyd B., 1999. "Inflationary expectations and rationality revisited," Economics Letters, Elsevier, vol. 62(3), pages 331-338, March.
    17. Hasan Bakhshi & Anthony Yates, 1998. "Are UK inflation expectations rational?," Bank of England working papers 81, Bank of England.
    18. Kim, Soyoung, 1999. "Do monetary policy shocks matter in the G-7 countries? Using common identifying assumptions about monetary policy across countries," Journal of International Economics, Elsevier, vol. 48(2), pages 387-412, August.
    19. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    20. Ferri, Piero & Greenberg, Edward & Day, Richard H., 2001. "The Phillips curve, regime switching, and the NAIRU," Journal of Economic Behavior & Organization, Elsevier, vol. 46(1), pages 23-37, September.
    21. Roberts John M., 2005. "How Well Does the New Keynesian Sticky-Price Model Fit the Data?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-39, September.
    22. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(1), pages 161-193.
    23. Douglas O. Staiger & James H. Stock & Mark W. Watson, 1997. "How Precise Are Estimates of the Natural Rate of Unemployment?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 195-246, National Bureau of Economic Research, Inc.
    24. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    25. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    26. S. Marcelo Portugal & Regina C. Madalozzo, 2000. "Um modelo de NAIRU para o Brasil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 20(4).
    27. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Aug), pages 9-110.
    28. Christopher D Carroll, 2001. "The Epidemiology of Macroeconomic Expectations," Economics Working Paper Archive 462, The Johns Hopkins University,Department of Economics.
    29. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-984, November.
    30. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    31. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
    32. Berk, Jan Marc, 2000. "Consumers' inflation expectations and monetary policy in Europe," Serie Research Memoranda 0020, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    33. John M. Roberts, 1998. "Inflation expectations and the transmission of monetary policy," Finance and Economics Discussion Series 1998-43, Board of Governors of the Federal Reserve System (U.S.).
    34. Laurence Ball, 2000. "Near-rationality and inflation in two monetary regimes," Proceedings, Federal Reserve Bank of San Francisco.
    35. Dahl Christian M. & Hansen Niels L., 2001. "The Formation of Inflation Expectations under Changing Inflation Regimes," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 4(4), pages 1-31, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kushal Banik Chowdhury & Nityananda Sarkar, 2017. "Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 15(3), pages 427-449, September.
    2. Adolfo Sachsida & Marcio Ribeiro & Claudio Hamilton dos Santos, 2009. "A Curva de Phillips e a Experiência Brasileira," Discussion Papers 1429, Instituto de Pesquisa Econômica Aplicada - IPEA.
    3. Alexis Maka & Fernando De Holanda Barbosa, 2014. "Phillips Curves: An Encompassing Test," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41st Brazilian Economics Meeting] 061, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    4. Vicente da Gama Machado & Marcelo Savino Portugal, 2014. "Phillips curve in Brazil: an unobserved components approach," Working Papers Series 354, Central Bank of Brazil, Research Department.
    5. repec:fgv:epgrbe:v:67:n:4:a:8 is not listed on IDEAS
    6. Fabrizio Almeida Marodin & Marcelo Savino Portugal, 2019. "Exchange Rate Pass-Through in Brazil: À Markov Switching DSGE Estimation for the Inflation Targeting Period," Russian Journal of Money and Finance, Bank of Russia, vol. 78(1), pages 36-66, March.
    7. Mário Jorge Mendonça & Adolfo Sachsida, 2012. "Inflação Versus Desemprego: Novas Evidências Para o Brasil," Discussion Papers 1763, Instituto de Pesquisa Econômica Aplicada - IPEA.
    8. Sachsida, Adolfo, 2013. "Inflação, Desemprego e Choques Cambiais: Uma Revisão da Literatura sobre a Curva de Phillips no Brasil," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 67(4), November.
    9. Leandro Nascimento Brito & Elcyon Caiado Rocha Lima, 2008. "Inflação e Nível de Atividade no Brasil: Estimativas via Curva de Phillips," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211039560, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:bofism:2005_032 is not listed on IDEAS
    2. Paloviita, Maritta, 2005. "The role of expectations in euro area inflation dynamics," Scientific Monographs, Bank of Finland, number 2005_032.
    3. Athanasios Orphanides & John Williams, 2004. "Imperfect Knowledge, Inflation Expectations, and Monetary Policy," NBER Chapters, in: The Inflation-Targeting Debate, National Bureau of Economic Research, Inc.
    4. Kim Chang-Jin & Kim Yunmi, 2008. "Is the Backward-Looking Component Important in a New Keynesian Phillips Curve?," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 12(3), pages 1-20, September.
    5. Sophocles N. Brissimis & Nicholas S. Magginas, 2008. "Inflation Forecasts and the New Keynesian Phillips Curve," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 1-22, June.
    6. Nunes, Ricardo, 2009. "Learning The Inflation Target," Macroeconomic Dynamics, Cambridge University Press, vol. 13(2), pages 167-188, April.
    7. Mankiw, N Gregory, 2001. "The Inexorable and Mysterious Tradeoff between Inflation and Unemployment," Economic Journal, Royal Economic Society, vol. 111(471), pages 45-61, May.
    8. Gerberding, Christina, 2001. "The information content of survey data on expected price developments for monetary policy," Discussion Paper Series 1: Economic Studies 2001,09, Deutsche Bundesbank.
    9. Rebecca L Driver & Jennifer V Greenslade & Richard G Pierse, 2003. "The role of expectations in estimates of the NAIRU in the United States and the United Kingdom," Bank of England working papers 180, Bank of England.
    10. Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 498-511, March.
    11. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2005. "A reappraisal of the inflation-unemployment tradeoff," European Journal of Political Economy, Elsevier, vol. 21(1), pages 1-32, March.
    12. Kevin Lansing, 2009. "Time Varying U.S. Inflation Dynamics and the New Keynesian Phillips Curve," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(2), pages 304-326, April.
    13. Sharon Kozicki & Peter A. Tinsley, 2002. "Alternative sources of the lag dynamics of inflation," Research Working Paper RWP 02-12, Federal Reserve Bank of Kansas City.
    14. Jeremy Rudd & Karl Whelan, 2007. "Modeling Inflation Dynamics: A Critical Review of Recent Research," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 155-170, February.
    15. Mash, Richard, 2002. "New Keynesian Microfoundations Revisited: A Generalised Calvo-Taylor Model and the Desirability of Inflation vs. Price Level Targeting," Royal Economic Society Annual Conference 2002 138, Royal Economic Society.
    16. Erceg, Christopher J. & Levin, Andrew T., 2003. "Imperfect credibility and inflation persistence," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 915-944, May.
    17. Bardsen, Gunnar & Eitrheim, Oyvind & Jansen, Eilev S. & Nymoen, Ragnar, 2005. "The Econometrics of Macroeconomic Modelling," OUP Catalogue, Oxford University Press, number 9780199246502.
    18. Ieva Rubene & Paolo Guarda, 2004. "The new Keynesian Phillips curve: empirical results for Luxembourg," BCL working papers 11, Central Bank of Luxembourg.
    19. Volker Wieland, "undated". "Monetary Policy and Uncertainty about the Natural Unemployment Rate," Computing in Economics and Finance 1997 11, Society for Computational Economics.
    20. Mr. Tamim Bayoumi & Ms. Silvia Sgherri, 2004. "Deconstructing the Art of Central Banking," IMF Working Papers 2004/195, International Monetary Fund.
    21. Michael T. Kiley, 2007. "A Quantitative Comparison of Sticky-Price and Sticky-Information Models of Price Setting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 101-125, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anp:en2003:b34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rodrigo Zadra Armond (email available below). General contact details of provider: https://edirc.repec.org/data/anpecea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.