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Phillips curve in Brazil: an unobserved components approach

Author

Listed:
  • Vicente da Gama Machado
  • Marcelo Savino Portugal
Abstract
This paper estimates reduced-form Phillips curves for Brazil with a framework of time series with unobserved components, in the spirit of Harvey (2011). However, we allow for expectations to play a key role using data from the Central Bank of Brazil’s Focus survey. Besides GDP, we also use industrial capacity utilization rate and IBC-Br, as measures of economic activity. Our findings support the view that Brazilian inflation targeting has been successful in reducing the variance of both the seasonality and level of the inflation rate, at least until the beginning of the subprime crisis, when there was a dramatic drop in activity. Furthermore, inflation in Brazil seems to have responded gradually less to measures of economic activity in recent years. This provides some evidence of a flattening of the Phillips curve in Brazil, a trend previously shown by recent studies for other countries.

Suggested Citation

  • Vicente da Gama Machado & Marcelo Savino Portugal, 2014. "Phillips curve in Brazil: an unobserved components approach," Working Papers Series 354, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:354
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    References listed on IDEAS

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    Cited by:

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    2. Carlos Medel, 2021. "Forecasting Brazilian Inflation with the Hybrid New Keynesian Phillips Curve: Assessing the Predictive Role of Trading Partners," Working Papers Central Bank of Chile 900, Central Bank of Chile.
    3. Alexius, Annika & Lundholm, Michael & Nielsen, Linnea, 2020. "Is the Phillips curve dead? International evidence," Research Papers in Economics 2020:1, Stockholm University, Department of Economics.
    4. Palma, Andreza Aparecida & Portugal, Marcelo Savino, 2014. "Preferences of the Central Bank of Brazil under the inflation targeting regime: Estimation using a DSGE model for a small open economy," Journal of Policy Modeling, Elsevier, vol. 36(5), pages 824-839.

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