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

Gouvêa, Raphael Rocha

doi:10.1002/jae.2880

Cited by 3 publications

(2 citation statements)

References 13 publications

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“…In Europe, on the other hand, the rise in energy prices following the Ukraine war has led to regressive effects, as -with few exceptions -poorer households spend a relatively higher share of their consumption budget on electricity and natural gas (Ari et al, 2022). Moreover, in emerging markets, food prices account for a higher relative share in household consumption baskets than in industrialized countries, making EME price indexes more sensitive to the exchange rate and foreign prices (Farhi, 2007), which is also reflected in inflation differentials between households within these countries, as documented for Brazil (Gouvêa, 2022).…”

Section: Introductionmentioning

confidence: 99%

Foreign Price Shocks and Inflation Targeting: Effects on Income and Inflation Inequality

Rolim,

Marins

2024

Review of Political Economy

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Foreign price shocks have significant effects on functional income distribution and on inflation inequality. By increasing prices in domestic currency that are linked to foreign prices, they increase the profit share in some sectors and reduce real wages, in particular of workers whose consumption basket is more sensitive to the price of certain goods (e.g. food prices for low-wage workers).Based on the conflicting-claims inflation literature, we propose a new extension to this framework by incorporating worker's heterogeneity (in terms of nominal income and consumption patterns) in an open economy model with an inflation-targeting regime. We investigate the impacts of foreign price shocks on income and inflation inequality and analyze how monetary policy influences these outcomes. Our simulation results indicate that a positive foreign price shock increases the profit share and the within-workers inequality (in real terms), since low-wage workers are more affected by these shocks. Yet, such effects are mediated by the strength of the monetary policy's transmission channels (domestic economic activity or nominal exchange rate), indicating that the monetary authority response may exacerbate or attenuate these distributive effects.

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Section: Introductionmentioning

confidence: 99%

Foreign Price Shocks and Inflation Targeting: Effects on Income and Inflation Inequality

Rolim,

Marins

2024

Review of Political Economy

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“…In the past decades, inflation rates have been low and stable in most of the world and are thus arguably of little importance for most households. In contrast, large fluctuations in the nominal exchange continue to be commonplace around the world and have meaningful economic consequences for many households (Gouvea, 2020;Cravino and Levchenko, 2017). Despite the economic importance of exchange rates, there is little evidence on how households form exchange rate expectations and how such expectations may affect consumption decisions.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic Expectations and Credit Card Spending

2020

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The Inflationary Impact of a Large Devaluation across the Income Distribution: The Case of Egypt in 2016

Alazzawi,

Hlasny

2024

Journal of African Economies

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Large-scale currency devaluations often result in rapid inflation, disproportionately affecting households with lower incomes, as they typically allocate a higher portion of their expenses to tradable goods. In this study, we examine cost-of-living changes of households across the income distribution in a relatively highly regulated, modest-inequality economy—Egypt—following the November 2016 devaluation of the Egyptian Pound when it depreciated by approximately 50%. We model the exchange rate pass through to domestic prices of various commodities, and the consumption responses by distinct economic groups, using true cost-of-living indices. We first quantify the exchange-rate pass-through to commodity prices, and then introduce a readily applicable methodology based on minimal data requirements to study the distributional implications for households’ cost of living and welfare, taking substitution effects and changes in preferences into consideration. Our findings reveal that over 30% of the rise in the cost of living of the average household was due to the devaluation, raising the amount of compensating variation necessary to keep households at their 2015 real welfare levels by 30% to 40% compared to the counterfactual scenario absent devaluation. These effects were more pronounced for some regions and among the poorest households. These disparities in welfare effects underscore the importance of designing and implementing targeted transfers to mitigate the negative impact of similar devaluations.

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

Cited by 3 publications

References 13 publications

Foreign Price Shocks and Inflation Targeting: Effects on Income and Inflation Inequality

Foreign Price Shocks and Inflation Targeting: Effects on Income and Inflation Inequality

Macroeconomic Expectations and Credit Card Spending

The Inflationary Impact of a Large Devaluation across the Income Distribution: The Case of Egypt in 2016

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