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    • Long run elasticity ln Long run semi elasticity The function

    2018-11-07

    Long-run elasticity: lnπ=1.06; Long-run semi-elasticity: π=0.29. The functional form given by (9) is not rejected, so that the money inelasticity buy betaxolol is rejected. Note also that the hypothesis of an elasticity equal to one (a1=1, Eq. (13)) could not be rejected. The value of the coefficient attached to the level of inflation (the semi-elasticity parameter) is significant. Table 2 shows the implied tax revenue maximizing inflation rate, which seems to lie around 350% in continuous terms. This translates into discrete rates a little bit above 3000% on an annual basis. That level is above the maximum calendar-year inflation rate reached during the sample, which took place in 1993, when inflation reached 2708%, according to the IGP–DI price index. However, it is well below the twelve-month rates observed in several months, such as those from February 1990 to August 1990 and February 1994 to July 1994. The highest rate in those two periods occurred in April 1990 (6602%) and June 1994 (5153%). The tax revenue maximizing inflation rate implied by the model is lower than those actually observed during the worst months of hyperinflation. Thus, the Government was on the decreasing part of the inflation tax curve. This fact is consistent with the weak hyperinflation hypothesis. Thus, the Government did not maximize the inflation tax revenue during hyperinflation. Using a general-to-specific model selection strategy two equilibrium correction specifications were selected. Eq. (17) – labelled Model 2 in Table 2 – refers to a specification with stochastic trend and a fixed level, while Eq. (18) – labelled Model 3 – represents specification where the level is allowed to vary stochastically.T=52 (1952–2003); ; R2=0.98; DW=1.72; Q(7, 6)=10.91 (0.09); H(16)=0.55 (0.88); Normality: . Long-run elasticity: lnπ=0.97; Long-run semi-elasticity: π=0.27T=52 (1952–2003); ; R2=0.98; DW=1.79; Q(8, 6)=5.50 (0.48); H(16)=0.72 (0.74); Normality: . Long-run elasticity: lnπ=0.98; Long-run semi-elasticity, π=0.29. The symbol μ stands for the value of the stochastic trend at the end of the sample. Q(p, q) is the Box–Ljung statistic for residual autocorrelation based on the first p autocorrelations. H(h) is a heteroscedasticity test and is a normality test based on the Bowman–Shenton statistic with a correction due to Doornik and Henrik (1994) (see Koopman et al., 2000 for further details). As before, both models pass all diagnostic tests. Indeed, they are very similar to the one obtained earlier, despite being estimated independently. Cointegration is found once again, suggesting a long-run relation among the variables. Likewise, the OLS case, the relevant inflation tax revenue functional form is given by Eq. (9) and, therefore, the money inelasticity hypothesis is rejected once again. Moreover, the elasticity of the inflation tax revenue with respect to inflation is around one as before, and the value of inflation semi-elasticity is practically the same as that obtained from Model 1. Table 2 gives the associated tax revenue maximizing inflation levels. It should be pointed out that not only both specifications produce stochastic trends with virtually the same shape – although Model\'s 3 trend is less smoother than Model 2 – but their shape is very similar to what was obtained before. The standard error of specification (16) is smaller than those of specifications (17) and (18), suggesting that the simpler OLS method does a better job in modelling the inflation tax than the UC framework. More importantly, the results are robust to the choice of how to model financial innovation. One interesting exercise is to reckon the inflation tax revenue that would have been collected by the Brazilian government if there had been no financial innovations. The result is shown in Fig. 6, according to the predicted values of Model 1, when financial innovation variables are set equal to zero, and assuming that the beginning of the sample financial innovation was zero, which seems a reasonable hypothesis to pin down its level. This figure also displays the actual inflation tax revenue collected by the government, so that it can be seen that financial innovation made a huge difference for the inflation tax revenue accrued.