Identity-based planning of prices and quantities: Cambridge and neoclassical models for Brazil

The paper uses two extensions of standard “sources of growth” analysis to develop price-endogenous medium term planning models for Brazil. The model constructed on the basis of neoKeynesian (or Cambridge, England) assumptions is shown to describe Brazilian growth and distribution changes in the 1960s better than the alternative neoclassical model. In forecasting exercises for the 1970s, both models point to a trade-off between increased inflation and a higher labor share. The neoclassical variant suggests that potential balance of payments difficulties can be offset by opportune devaluation, but the Cambridge results are much less optimistic. Current events suggest that this pessimistic view may be closer to the mark.