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Long Memory Inflationary Dynamics: The Case of Brazil

Reisen Valderio A, Cribari-Neto Francisco and Mark Jensen ()
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Reisen Valderio A: University Federal do Espirito Santo
Cribari-Neto Francisco: University Federal de Pernambuco

Studies in Nonlinear Dynamics & Econometrics, 2003, vol. 7, issue 3, 1-18

Abstract: It has been argued by several authors that the inflationary dynamics in Brazil follow a unit root process, thus displaying some inertia. Indeed, Cati, et al. (Journal of Applied Econometrics, 1999) have found that the inflationary dynamics in Brazil are nearly fully inertial. 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, contrary to what has been found by other researchers. We also found that the estimates of the fractional parameter are invariant to first differencing.

Date: 2003
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