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12-Real-1 - Plano Real The Latin American Economy Based...

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Plano Real The Latin American Economy
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Based partially on Avoiding some costs of inflation and crawling toward hyperinflation: The case of the Brazilian domestic currency substitute by Márcio Garcia.”
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Classical Hyperinflation The pattern of a classical hyperinflation is an acute acceleration of inflation rates until reaching extremely high levels. Also typical: rapid substitution away from domestic currency (e.g. dollarization).
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Monthly Inflation Brazil
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This shows that despite high levels of inflation before plano Real, Brazilian inflation was not killed and did not show classical explosive hyperinflation. Next table also show that Brazil exhibited surprised resilience to high levels of inflations
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Brazil: Real GDP growth and Inflation
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Two key elements played a role differentiating Brazil from the classical hyperinflation experience: (1) Indexation (2) Provision of a domestic currency substitute (i.e. interest paying asset with near money liquidity). This second element was the main source of Brazilian central bank inability to fight inflation and the unwillingness of Brazilians to face the costs of such a fight.
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Main reasons to Brazilian Hyperinflation 1.
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