Analysis of the inflationary dynamic post-Brazilian Real Plan as a process of long memory

Artur José. LEMONTE [1]

Themis da Costa. ABENSUR[2]

Ricardo Chaves. LIMA2

§    abstract: Some authors have argued that the inflationary dynamics in Brazil follows a process of unit root. Indeed, Cati et al. (Journal of Applied Econometrics, 1999) showed that inflationary dynamics in Brazil is almost completely inertial. Moreover, Reisen et al. (Studies in Nonlinear Dynamics & Econometrics, 2003) showed that the Brazilian inflationary process is free of inertia. In these two studies, the authors used the index known as IGP-DI (`Índice Geral de Preços, Disponibilidade Interna') considering the full range. In this article, we studied the dynamic Brazilian inflationary after the implementation of the Real Plan in 1994, considering the index known as IPCA (`Índice Nacional de Preços ao Consumidor Amplo'). We estimate the fractional differencing parameter using an ARFIMA specification for the inflation rate in that country and our results suggest that the inflationary dynamics are better modeled by a long memory process than by a unit root mechanism, thus implying that there is no inertia in inflation.

§    KEYWORDS: ARFIMA models; inflation inertia; inflationary dynamics.



[1] Departamento de Estatística, Universidade de São Paulo - USP, Rua do Matão, 1010, CEP: 05508-090, São Paulo, SP,  Brasil. E-mail: arturlemonte@gmail.com

[2] Departamento de Economia, Universidade Federal de Pernambuco -UFPE, CEP: 50670-901, Recife, PE, Brasil, E-mail: tabensur@gmail.com / rlima@ufpe.br