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The end of Brazilian big inflation: lessons to monetary policy from a standard New Keynesian model

Author

Listed:
  • Luckas Sabioni Lopes

    (Federal University of Juiz de Fora)

  • Marcelle Chauvet

    (University of California)

  • João Eustáquio Lima

    (Federal University of Viçosa)

Abstract

The paper analyzes economic stabilization in Brazil in the context of a New Keynesian model estimated with Bayesian techniques. Dataset covers the period 1975–2012. Our methodology is based on tests for multiple structural breaks at unknown dates and counterfactual exercises. The results show that inflation and output volatility present an inverted U-shape pattern, peaking at the 1985–1994 sample. Changes in the monetary policy stance and milder shocks accounted for the reduced inflationary volatility (about 50% each, in some specifications). However, some assumptions indicated that a sharp decline in the Phillips curve slope was also important for controlling inflation. Concerning to output, the sole explanation for its volatility fall seemed to be smaller shocks. Therefore, we conclude that a mix of the “good luck” and “good policy” hypotheses mainly originated the current period of increased stability in the country.

Suggested Citation

  • Luckas Sabioni Lopes & Marcelle Chauvet & João Eustáquio Lima, 2018. "The end of Brazilian big inflation: lessons to monetary policy from a standard New Keynesian model," Empirical Economics, Springer, vol. 55(4), pages 1475-1505, December.
    • Handle: RePEc:spr:empeco:v:55:y:2018:i:4:d:10.1007_s00181-017-1324-4
    DOI: 10.1007/s00181-017-1324-4
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    More about this item

    Keywords

    Monetary policy; New Keynesian model; Bayesian estimation; Brazil;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • 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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