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Asymmetric transmission of monetary policy on disaggregated inflation: lessons from Brazil

Author

Listed:
  • Rafael S. M. Ribeiro
  • Gilberto Tadeu Lima
  • Gustavo Pereira Serra
  • Marina Sanches

Abstract

This article examines the impact of restrictive monetary policy, specifically an increase in the benchmark interest rate (Selic), on inflation rates across different consumption groups in Brazil, as measured by the Extended National Consumer Price Index (IPCA). The Central Bank of Brazil uses the Selic rate to align inflation with its target. The study uses the Local Projections model on data from January 2007 to December 2023 to analyze how inflation in various groups and subgroups responds to changes in the Selic rate. Findings indicate that an increase in the Selic rate reduces inflation in groups like “Food and beverages†, “Household items†, and “Clothing†, but has little effect on “Housing†and “Communication†. This research highlights the need for tailored economic policies for different consumption segments, illustrated by a case during the COVID-19 pandemic.

Suggested Citation

  • Rafael S. M. Ribeiro & Gilberto Tadeu Lima & Gustavo Pereira Serra & Marina Sanches, 2024. "Asymmetric transmission of monetary policy on disaggregated inflation: lessons from Brazil," Working Papers, Department of Economics 2024_24, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2024wpecon24
    as

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    File URL: http://www.repec.eae.fea.usp.br/documentos/Ribeiro_Lima_Serra_Sanches_24WP.pdf
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    References listed on IDEAS

    as
    1. Newey, Whitney K & West, Kenneth D, 1987. "Hypothesis Testing with Efficient Method of Moments Estimation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 777-787, October.
    2. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    3. José Luis Montiel Olea & Mikkel Plagborg‐Møller, 2021. "Local Projection Inference Is Simpler and More Robust Than You Think," Econometrica, Econometric Society, vol. 89(4), pages 1789-1823, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Monetary policy; Selic rate; disaggregated inflation; Local Projections model;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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