The anatomy of brazilian inflation in three essays: regional dynamics, distributional impact, and the role of food prices

Abstract

This thesis investigates the sources, transmission channels, and distributional consequences of Brazilian inflation across three essays covering the period 1999–2026, using panels disaggregated by expenditure category, metropolitan region, and household income. We test the hypothesis that a homogeneous treatment of the headline IPCA conceals structural heterogeneity that disaggregated econometric methods can uncover. The methodology combines the Multivariate Core Trend (MCT) of Almuzara and Sbordone (2022, 2024) with a Time-Varying Parameter VAR with Dynamic Connectedness (TVP-VAR-DY) and local projections to assess shock transmission and the monetary policy response, a Time-Varying Parameter (TVP) Phillips curve estimated via the Kalman filter, the Club Convergence approach of Phillips and Sul (2007, 2009), and a Univariate Unobserved Components Stochastic Volatility Outlier-adjusted (UCSVO) model. Results indicate that: (i) food inflation is structurally heterogeneous, with Food at Home displaying rising permanent volatility and outlier probabilities above 0.85 against a ceiling of 0.21 for Food Away From Home, while Food Away From Home propagates permanent shocks more intensely (88.33% versus 78.09%) and elicits a stronger Selic response despite its smaller basket weight; (ii) regional persistence varies markedly across the eleven metropolitan areas analyzed, with no global convergence in headline regional inflation but clear convergence in Household Items and Transportation; (iii) inflation inequality across income strata is regressive, as trend inflation is consistently higher and more volatile for lower-income households, whose outliers are also more frequent and severe; and (iv) transmission is highly asymmetric, with the output gap affecting lower-income inflation as early as 2008, more than a decade before its effect became evident in the headline index. This indicates that monetary policy calibrated solely on the aggregate IPCA risks responding too late, too uniformly, or too regressively to price dynamics that are, in fact, substantially heterogeneous. Ultimately, these findings establish that sectoral, regional, and distributional disaggregation is a technical requirement for improving the precision, timing, and fairness of monetary policy in Brazil.