Vol. 16 No. 4 (1996): Oct-Dec / 1996

Vol. 16 No. 4 (1996)

Oct-Dec / 1996
Published October 1, 1996


Orthodox models of high inflation: a critical analysis
Luiz Antonio de Oliveira Lima
Brazilian Journal of Political Economy

This paper argues that orthodox models of high inflation for developing
countries, based on seminal Cagan’s model of hyperinflation, present some weak points
by ignoring the complexity brought to the economy by high inflation, as well as by
assuming that economic agents can dwell in this situation because they are endowed with
an “unbounded rationality” to take their decisions. The paper argues too, that in order to
understand this process and to suggest proper policies, it is necessary to recognize that a
desinflationary process requires gradual policies that allow economic agents to adjust their
behavior to the new circumstances that are brought about by these policies. The hypothesis
to make about this behavior is that is characterized by a “bounded rationality”.

JEL Classification: E31; E13.

Deciphered inflation
Luiz Carlos Bresser-Pereira
Brazilian Journal of Political Economy

This paper is an account of the intellectual process that led, in the early 1980s, to
the definition of a new economic theory – the theory inertial inflation – and to the proposal
of heterodox policies to deal with this type of high and chronic inflation, that, in intensity
terms, stays between moderate or usual inflation and hyperinflation. The theory says that
this type of inflation is the consequence of phased or staggered price adjustments. Economic
agents are involved in an endless process of balancing and unbalancing relative prices, as
they keep up with the going inflation, formally or informally indexing their prices. To fight
this type of inflation orthodox or conventional fiscal and monetary policies are insufficient.
In addition, it is necessary to adopt a heterodox mechanism that neutralizes inertia, making
possible to stop inflation. It is part of a book in preparation where the author reports his
experience as finance minister of Brazil in 1987.

JEL Classification: E31; B22.

Contestability and economic integration in Western Hemisphere
José Tavares de Araújo Jr.
Brazilian Journal of Political Economy

This paper discusses the harmonization of competition policies in the Western
Hemisphere. Using the theory of contestable markets, it presents an analytical framework
that shows the requirements for achieving coherence among the different policies that
affect the competition process. According to that theory, the normative parameters for
monitoring the conduct of the business community should be subordinated to some special
characteristics of each industry, namely, the ratio transaction costs/production costs, the
nature of entry barriers, and the interplay between existing technologies and the market size.
This approach would allow the immediate involvement of all 34 OAS member countries
in the effort toward the convergence of competition policies in the Western Hemisphere,
regardless of the status of national antitrust laws. Indeed, the only requirement for participating in that effort is a reliable data base that would describe the current conditions
of competition in each economy.

JEL Classification: F15; L13.

The principle of effective demand (expected), and the role of demand in Keynes’ general theory
Victor Hugo Klagsbrunn
Brazilian Journal of Political Economy

Effective demand was defined by Keynes as that which the entrepreneur
expects at the time he decides to invest. From that decision, all other essential variables
are determined by the model developed in The General Theory, as long as a series of other
variables are considered a given. Keynes’ model, therefore, is situated at the ex-ante moment,
without considering autonomous changes in variables that are not investments per se. The
construction, the presuppositions and the consequences of the effective demand principle
seriously affect the results that can be achieved by its application, due in great part to the
contradictions inherent to Keynes’ treatment of the consumer market and, especially, to
the propensity to consume. In excluding market considerations and variables, the model
developed in The General Theory only partially represents that which occurs in the economy
even when the investment varies, since this is considered an autonomous outlay that does
not depend on production, employment, income or demand variables that might occur,
whether or not they arise from prior investments.

JEL classification: B22; E12.

International regulatory experiences for telecommunications and service restructuring in Brazil
Anne-Marie Maculan, Liz-Rejane Legey
Brazilian Journal of Political Economy

The telecommunications services have been submitted to large technological
and economic changes during the last decade, which gave rise to a new pattern of demand
and introduced new competitive parameters in the suppliers’ global market. The competitive
battle in the provision of telecommunication service is blurring the frontiers between the
public and the private sector. In this process, the old institutional structures are no more
suitable to the provision of new services. Experiences on telecommunication restructuring are taking place in many different countries with strong impacts at the international level.
The present work aims to analyze these changes and the challenges which the Brazilian
telecommunication sector has to meet, in order to contribute to the debate over a new public

JEL Classification: L51; L33; O30.

Structural change in Mexicos employment and the impact of Nafta
Enrique Dussel Peters
Brazilian Journal of Political Economy

Mexican society and economy are at an extremely complex historical crossroads.
The Mexican liberalization strategy, as in many other Latin American countries, has
privileged macroeconomic aspects, ignoring crucial issues such as savings and domestic
investment, growth and employment, among others. The results of this strategy are
unsustainable and present several weaknesses, as was evident in the crisis of December 1994.
An important aspect of this situation is that the private sector is at the center of the crisis.
Only a few economic activities have been able to generate employment opportunities above
the minimum necessary for Mexican society. Several time series models demonstrate that
GDP growth is fundamental for job creation; however, it is difficult to imagine that it is
possible to achieve an annual GDP growth greater than 10%, the level necessary to absorb
the growth of the economically active population. To mitigate this situation, a profound
reformulation of the liberalization strategy and an explicit job creation policy are suggested.

JEL Classification: F62; F43; F36.

De México a México: el desempeno de América Latina en los 90
Mário Damill, José María Fanelli, Roberto Frenkel
Brazilian Journal of Political Economy

The purpose of this article is to assess the performance of Latin American
economies in the 1990s, until the Mexico crisis of December 1994. The assessment focuses
on the problem of the sustainability of the macroeconomic trends observed in the present
decade and some long-term characteristics implicit in performance growth. Two main
conclusions of the article are that, after the crisis in Mexico – a country that until then had
had a positive influence on attracting capital -, analyzes of the region’s economies came to
understand that the ongoing modernization process was not immune to crises , and that,
given the revision in the country risk indicators, future capital inflows will not be similar, in
quantity and type, to those of the early 90s, putting investment decisions in the region in
permanent change.

JEL Classification: G01; O40.

Short Article

United States versus Europe: distinct markets, different ways of doing economic science
Fabio Sá Earp
Brazilian Journal of Political Economy

This paper is a debate synthesis in the economics teaching and research
characteristics in Europe and USA. Two market patterns are defined for the economists’
activities, and their alterations in a near future are defined.

JEL Classification: Z13; A29; J24.