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Measuring the Stability of the Price System

Author

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  • Antonio Fiorencio
  • Ajax Moreira

Abstract

Is the high degree of indexing that characterized the Brazilian economy for decades a thing of the past, or could it be easily reactivated in the event of some important price shock? Alternatively: is the economy sufficiently stable to absorb a large exchange rate nominal devaluation? This paper propose and estimates some measures of the stability of the price system using characteristic roots of time varying parameter VAR model. We used the proposed methodology to evaluate price system stability of selected countries: Brazil, Argentina, Israel, Mexico and United Kingdom. O alto grau de indexação que caracterizou a economia brasileira por décadas é um fato passado ou pode ser facilmente reativado no caso de um importante choque nominal? Alternativamente, a economia está suficientemente estável para absorver uma grande desvalorização nominal do câmbio? Este artigo propõe e estima algumas medidas de estabilidade do sistema de preços utilizando as raízes características de um modelo auto-regressivo vetorial que foi estimado com parâmetros flutuando no tempo. A metodologia foi utilizada para avaliar a estabilidade dos sistemas de preços de países selecionados: Brasil, Argentina, Israel, México e Inglaterra.

Suggested Citation

  • Antonio Fiorencio & Ajax Moreira, 2015. "Measuring the Stability of the Price System," Discussion Papers 0088, Instituto de Pesquisa Econômica Aplicada - IPEA.
    • Handle: RePEc:ipe:ipetds:0088
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    References listed on IDEAS

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    1. Taimur Baig & Ilan Goldfajn, 2002. "Monetary Policy in the Aftermath of Currency Crises: The Case of Asia," Review of International Economics, Wiley Blackwell, vol. 10(1), pages 92-112, February.
    2. Sergio Rebelo & Carlos A. Végh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188, National Bureau of Economic Research, Inc.
    3. Sims, Christopher A & Zha, Tao, 1998. "Bayesian Methods for Dynamic Multivariate Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 949-968, November.
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