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Inflation persistence and new Keynesian Phillips curves for Brazil

Author

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  • Fernando de Aquino Fonseca Neto

Abstract

In this paper is shown that sustainable inflation persistence has theoretical support not only due price indexation, but also because of micro-foundations based on assumptions of Simon’s bounded rationality and because of persistent mark-up shocks. the new keynesian phillips curve, estimated for brazil for the period 2000/2008, and the partial coefficients of determination for moving sub-periods of 36 months identifies inflation persistence as the main determinant of inflation, with the capacity gap presenting larger importance only in the end of the sample period. Inflation persistence requires harder monetary policy when neither accommodation is acceptable nor complementary policies in order to reduce it, such as the minimization of indexation mechanisms and control of the market power, are adopted. JEL Classification: E31; D82; D84; E12.

Suggested Citation

  • Fernando de Aquino Fonseca Neto, 2010. "Inflation persistence and new Keynesian Phillips curves for Brazil," Brazilian Journal of Political Economy, Center of Political Economy, vol. 30(2), pages 310-328.
    • Handle: RePEc:ekm:repojs:v:30:y:2010:i:2:p:310-328:id:444
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    More about this item

    Keywords

    inflation persistence; bounded rationality; market power; expectations; Phillips curves;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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