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Large devaluations and inflation inequality: evidence from Brazil

Raphael Gouvea ()
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Raphael Gouvea: Institute for Applied Economic Research (IPEA); Department of Economics, University of Massachusetts Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: In the aftermath of large devaluations, prices of tradable goods/lower-priced varieties increase significantly more than the prices of nontradables/higher-priced varieties. These relative price changes may lead to inflation inequality when household consumption baskets are different across the distribution of income. Using Cravino and Levchenko [2017]’s methodology, we show that inflation of poor households in Brazil was at least 11 percentage points higher than of the rich in the aftermath of the 2002 large devaluation. A detailed case study of the City of São Paulo estimates an inflation inequality ranging from 8 to 11 percentage points in the city.

Keywords: Exchange Rate Devaluation; Pass-Through; Inflation; Inequality (search for similar items in EconPapers)
JEL-codes: E31 F31 F41 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-lam, nep-mac, nep-mon and nep-opm
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