Searching for the Natural Rate of Unemployment in a Large Relative Price Shocks' Economy: the Brazilian Case
This paper contributes to fill the large existing gap in the literature on the Brazilian natural rate of unemployment. It reveals not only that the correlation between inflation and unemployment has changed radically since the stabilisation of the economy but, more surprisingly, that it has become positive in the recent past. In other words, there has apparently been no trade-off between inflation and unemployment. However, this fact is due to – and highlights – the paramount importance of supply shocks in recent inflation dynamics in Brazil. The paper then shows that the exchange rate has been the major source of shocks to inflation, even though it is not enough to explain the magnitude and persistence of those shocks. Part of the answer comes from the large and wide effects produced by privatisation on the price dynamics in Brazil. The evidence presented here suggests that the Brazilian natural rate of unemployment has been constant since 1996. Despite the high degree of uncertainty involved in natural rate estimations, point estimates seem to lie somewhere between the 7.4%–8.5% range. The paper also sheds light on why real interest rates have been so high for extended periods of time in Brazil, a feature that has puzzled many economists. Finally, it calls to attention that one important core inflation measure in Brazil has not been able to capture underlying inflation properly and, therefore, has to be used with caution.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laurence Ball & N. Gregory Mankiw, 2002.
"The NAIRU in Theory and Practice,"
Journal of Economic Perspectives,
American Economic Association, vol. 16(4), pages 115-136, Fall.
- Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Harvard Institute of Economic Research Working Papers 1963, Harvard - Institute of Economic Research.
- Laurence Ball & N. Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," NBER Working Papers 8940, National Bureau of Economic Research, Inc.
- Laurence Ball & N Gregory Mankiw, 2002. "The NAIRU in Theory and Practice," Economics Working Paper Archive 475, The Johns Hopkins University,Department of Economics.
- David Gruen & Adrian Pagan & Christopher Thompson, 1999.
"The Phillips Curve in Australia,"
RBA Research Discussion Papers
rdp1999-01, Reserve Bank of Australia.
- Janine Aron & John Muellbauer & Benjamin W. Smit, 2004.
"A Structural Model of the Inflation Process in South Africa,"
Economics Series Working Papers
WPS/2004-08, University of Oxford, Department of Economics.
- Janine Aron & John Muellbauer & Benjamin Smit, 2004. "A Structural Model of the Inflation Process in South Africa," Development and Comp Systems 0409055, EconWPA.
- Janine Aron & John Muellbauer & B. Smit, 2004. "A Structural Model of the Inflation Process in South Africa," CSAE Working Paper Series 2004-08, Centre for the Study of African Economies, University of Oxford.
- Jurgen A. Doornik & Henrik Hansen, 2008.
"An Omnibus Test for Univariate and Multivariate Normality,"
Oxford Bulletin of Economics and Statistics,
Department of Economics, University of Oxford, vol. 70(s1), pages 927-939, December.
- Jurgen A Doornik & Henrik Hansen, . "An omnibus test for univariate and multivariate normalit," Economics Papers W4&91., Economics Group, Nuffield College, University of Oxford.
When requesting a correction, please mention this item's handle: RePEc:bcb:wpaper:163. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francisco Marcos Rodrigues Figueiredo)
If references are entirely missing, you can add them using this form.