Breakpoint Analysis for the Brazilian Inflation in the pre-Real Stabilization Plans

During the Brazilian hyperinflation period (1980-1994), several plans to control the inflation (stabilization plans) were implemented, relying on very diverse premises and a wide range of instruments of economic policy. Nevertheless, none of these plans had obtained success in the goal of controlling the price index rise until the Real Plan (1994). This work aims to analyze, applying econometric tests, if there are structural breakpoints in the inflation series in the moments of application of such stabilization plans. The main goal is to assess if any of these plans could be adequate (i.e., effective in cutting short the inflation) if the inflationary process in the country had not taken massive proportions. Through the tests we recur to, one can get to the conclusion that there is strong evidence to support the hypothesis of a structural break in inflation trend only for the Real Plan (July 1994). This corroborates the hypothesis that the main factor causing the failure of previous plans was not the inflation level per se, but the inadequate character of these plans (and, by contrast, the adequate character of Real) to fight inflation