An analysis of the degrees of persistence of inflation, inflation expectations and real interest rate in Brazil
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2011
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This paper makes use of Auto-Regressive Fractionally Integrated (ARFIMA) models, as well as unit root tests with structural breaks, to examine the IPCA (the official inflation rate), inflation expectations, and the real interest rate in Brazil. For the period ranging from July 1999 to December 2010 the results show that the Brazilian inflation can be taken as stationary and mean-reverting, with some degree of persistence. As for inflation expectations, the non-stationarity detected in the fractional integration model is due to structural breaks, meaning that they can also be taken as stationary with mean-reversion. Finally, the Selic interest rate shows some sign of non-stationarity, which had already been found in the unit root tests. However, it cannot be characterized by a unit root of a pure form, but as a fractionally integrated process with some long memory.