Indexation and dispersion of relative prices: analysis of the Brazilian case (1975-1991)

ABSTRACT

In this paper we attempt to show that the gradual process of indexation which results from inflationary processes may be responsible for the reduction in the dispersion of relative prices. We develop a model relating the length of adjustment periods, indexation and the dispersion of relative prices. Next, we look at the evidences on the behavior of relative wages in Brazil. We conclude with a discussion of the efficiency of price freezes as a stabilization strategy.

KEYWORDS:
Inflation; indexation; relative prices; stabilization