EXPLOITING A NEGATIVE SUPPLY SHOCK TO UNDERSTAND BETTER MACROECONOMIC ADJUSTMENTS IN THE BRAZILIAN ECONOMY

In 2001 the Brazilian government implemented a national electricity rationing program that lasted nine months and mandated the reduction of electricity consumption by 20 percent. The rationing program received much blame when the economy grew only one percent in 2001. This dissertation motivates the questions: What were the effects of the rationing program on the Brazilian economy? Were existing economic relationships altered by the rationing program? And, What role did substitution play in allowing the economy to adjust to the reduced electricity consumption?Uni-variate and multivariate forecasting techniques are used with monthly data to estimate the impact of the rationing program. During the intervention period, industrial electricity consumption was 16.4 percent below trend values and commercial electricity consumption was 25.2 below trend values; GDP was 3.1 percent below trend values. Economic relationships, as indicated by Granger causality, do change between the pre-intervention and post-intervention periods. Elasticities of substitution, calculated from the parameters of a translog cost function using annual data, are quite stable during the intervention. Fuel substitution does not appear to be the primary means of adjusting to the input shock.