Recent dynamics of Brazilian inflation in different environments of forward-looking expectations

ABSTRACT This work analyzes how the recent Brazilian inflation responds to economic cycles and its inertial component considering different environments of forward-looking expectations in the framework of the Hybrid New-Keynesian Phillips Curve (HNKPC). To do this, use is made of monthly data from January 2002 to August 2015 and GMM-HAC estimates of the HNKPC. The results suggest that Brazilian inflation still has a strong inertial component and that in an environment of lower predictability of economic agents, inflation seems to be more sensitive to cyclical fluctuations in economic activity. Finally, it was observed a positive and significant pass-through exchange rate to inflation in Brazil.