TITLE:
The Public Debt’s Dedollarization Effect in an Inflation Target Economy: A Theoretical Approach
AUTHORS:
Fernando Motta Correia, Luciano Ferreira Gabriel
KEYWORDS:
Debt, Macroeconomics, Dynamics
JOURNAL NAME:
Modern Economy,
Vol.6 No.3,
March
16,
2015
ABSTRACT: The main objective of this paper is to verify the necessary conditions
for a possible existence of a steady state balance in an economy. This steady
state balance contemplates in its long-term period, the dynamics of the
inflation, the interest rate and the exchange rate. Besides, it is considered
the public debt of the economy, which is indexed to these three variables in an
environment where monetary politics incorporates the use of inflation target.
In the stability analysis, it is possible to verify a rest position in the
system framework. The conditions at this point present an economy with a
mechanism of “dedollarization” of the public debt. By this first condition, the
stability analysis calls attention with respect to the measure of the process
of “dedollarization”. Depending on its intensity, the economy will show a
positive wealth effect that could stimulate the expansion of the investments.