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Large devaluations and inflation inequality: Replicating Cravino and Levchenko (2017) with evidence from Brazil

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  • Raphael Gouvêa

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's (2017, https://doi.org/10.1257/aer.20151551) methodology, we show that inflation of poor households in Brazil was at least 11 percentage points higher than that 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.

Suggested Citation

  • Raphael Gouvêa, 2022. "Large devaluations and inflation inequality: Replicating Cravino and Levchenko (2017) with evidence from Brazil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(3), pages 657-664, April.
    • Handle: RePEc:wly:japmet:v:37:y:2022:i:3:p:657-664
    DOI: 10.1002/jae.2880
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    References listed on IDEAS

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    3. Eric A. Verhoogen, 2008. "Trade, Quality Upgrading, and Wage Inequality in the Mexican Manufacturing Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 489-530.
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