Endogeneidade do déficit público à inflação: implicações do déficit orçamentário potencial num modelo tipo Cagan

Abstract

In order to contexfalize the concept of potential budgetary deficit, we begin discussing
in a form of brief revision the existent relationships between some of the main concepts
of public deficit. We go on explaining the new concept of potential budgetary deficit
exposed in Bacha (1994) and we used it to derive its implications in a Cagan-type model
for high inflation economies. Particularly, the equilibrium conditions and the inflationary
dynamics are analyzed in this model with the public deficit in real terms being inversely
endogenous to inflation, just as it is sustained by the hypothesis of the potential
budgetary deficit. The obtained results show that only with that kind of endogenity of the
deficit to inflation can we obtain a substantive modification of the qualitative results of
the equilibrium conditions and of the inflationary dynamics, in relation to those usually
obtained in Cagan-type models. In first place, there will always be at least one
inflationary equilibrium associated to any possible level of potential budgetary deficit. In
second place, a hyperinflation situation can now happens with rational expectations
and money demand Cagan-type, even in presence of instantaneous adjustment of the
money market and absence of rigidity of prices and/or wages.