Fernando de Holanda Barbosa

The contagion effect of public debt on monetary policy: the brazilian experience

This paper attempts to explain why the Brazilian inter-bank interest rate is so high compared with rates practiced by other emerging economies. The interplay between the markets for bank reserves and government securities feeds into the inter-bank rate the risk premium of the Brazilian public debt.

Inflation Tax and Money Essentiality

This chapter addresses the issue of money essentiality using Brock’s (1975) model. We present an argument which casts doubt on the conclusion reached by Obstfeld and Rogoff (1983), henceforth called O–R, based on the same theoretical framework. According to O–R, speculative hyperinflation—under a pure fiat money regime—can be ruled out only when severe restrictions are placed on individual preferences, e.g., agents must have infinitely negative utility when their real balances are zero. We argue that this restriction can be tested with data from hyperinflation experiments by looking at the behavior of the inflation tax, as real balances approach zero.

A paridade do poder de compra: existe um quebra-cabeça?

This paper shows that the purchasing power parity puzzle is a statistical artifact produced by the fact that the long run equilibrium real exchange rate is not constant, but changes throughout time. This fact implies that the inertia coefficient has an upward bias.

Hyperinflation: Inflation tax and economic policy regime

This paper shows that price level indeterminacy in monetary models with multiple equilibria can be solved by the selection of an appropriate monetary policy regime, according to the demand elasticity of the real quantity of money with respect to inflation rate. Money is essential when this elasticity is less than one, in absolute value. In the monetary regime, in which the central bank controls money growth, hyperinflation does not occur when money is essential, but may occur when it is not. In the fiscal regime, typical of the 20th centurys hyperinflation experiences, wherein the issuance of money is used to finance the public deficit, the hyperinflation of stationary equilibrium occurs when money is essential and the public deficit reaches a critical value. However, if money is not essential such equilibrium does not exist. The essentiality of money is therefore an important aspect to consider and should not be decided on the basis of merely theoretical arguments. The hypothesis that the social cost of hyperinflation is infinite cannot be rejected a priori, but it has to be tested by using inflation tax data from hyperinflation experiences.

Hiperinflação: um arcabouço teórico

Este trabalho apresenta uma teoria da hiperinflacao na qual nao ha necessidade de apelar-se para hipoteses casuisticas, como expectativas adaptativas, ajustamento parcial no mercado monetario ou profecias que se autorealizam. O modelo tem um agente representativo com vida infinita que aloca seus recursos de sorte a maximizar o bem estar, todos os mercados estao em equilibrio, o banco central financia o deficit publico e a moeda e essencial. A hiperinflacao ocorre porque a restricao intertemporal do governo nao e satisfeita. O arcabouco teorico produz algumas conclusoes sobre a duracao da hiperinflacao, e sobre outras caracteristicas deste processo, nem sempre em concordância com a sabedoria convencional. O artigo tambem analisa como o fenomeno da substituicao da moeda, um fato estilizado das experiencias hiperinflacionarias, pode afetar a essencialidade da moeda, um ingrediente basico do modelo.

Economic Development: the Brazilian Experience

The Brazilian economy has experienced remarkable economic growth for most of this century, albeit at high cost in terms of social equity. From the beginning of the 1980s the economy entered a period of stagflation, which can be explained by two factors. Firstly, the growth strategy based on import-substitution industrialization had been exhausted. Secondly, the deep fiscal crisis that unfolded following the onset of the external debt problem at first was not perceived as such, nor afterwards was it met by an adequate institutional and political environment for solving it.

O valor da moeda e a teoria dos preços dos ativos

The price of money, as the price of any financial asset, can be determined through asset pricing theory. Based on this approach, this paper presents a concise survey of the following topics of monetary theory: i) price of money: bubbles versus fundamentals; ii) multiple equilibria; iii) price level indeterminacy; iv) optimum quantity of money; v) hyperinflation; vi) currency substitution, and vii) price of money rigidity.

Chronic Inflation and Hyperinflation

The typical models that try to explain hyperinflation contain three basic ingredients: (1) the portfolio allocation decision with the specification of a money demand equation in which the expected inflation rate is a key argument; (2) a mechanism that describes the expectations formation; and (3) an equation representing the government deficit financing through money issuing. Cagan (1956) took into account the first two ingredients, but considered money as exogenous, while Kalecki (1962) hyperinflation model contained the three ingredients. The current economic literature follows this theoretical framework and has several contributions that analyze the properties of the hyperinflation models. Evans and Yarrow (1981) and Buiter (1987), among others, state that rational models are unable to produce hyperinflationary processes, although they are able to generate hyperdeflationary processes. Kiguel (1989) based on the hypothesis that prices and wages are not flexible, introduced in his model the assumption that the money market does not adjust instantaneously, but according to a partial adjustment mechanism. Having this additional hypothesis, the model with rational expectations is able to generate hyperinflationary processes to some values of the structural parameters of the model.

Hyperinflation Pitfalls: Fundamentals Versus Bubbles

In the set-up of our hyperinflation model, in a joint paper with Sallum (Barbosa et al. 2006, thereafter BCS), we were very careful to avoid some traps that have plagued the literature on hyperinflation. In our model, hyperinflation is caused by fundamentals not by bubbles. We showed that a hyperinflation path would not be a competitive equilibrium outcome if the public deficit to be financed by issuing money were constant.

O Brasil pode repetir o milagre econômico

This article analyze the necessary conditions for Brazilian income per capita to duplicate in a time span of fifteen years, as it happened in the 1970s. Growth accounting is used to identify the sources of growth of Asian countries (China, Hon Kong, Japan, Singapore, South Korea and Taiwan) and Brazil during periods where income per capita has doubled in the past. The main restriction for the Brazilian economy to get back the growth performance of the 1970s is the low rate of investment. To increase this rate requires a substantial increase of the domestic savings rate.