What drives core inflation in Brazil?

Orientador(a): Gilberto Oliveira Boaretto

We propose a large structural VAR approach which assumes that the target variables are affected by a few common shocks, in line with the factor literature, to assess impacts on Brazil’s core inflation. Our findings suggest that core inflation in Brazil is driven primarily by supply shocks, mainly the energy-related ones, across the whole sample. This result is somewhat surprising because these prices are not accounted for directly in the core inflation index, so the impact comes from second-hand and spillover effects in the economy. We also find no evidence that global supply chains had a relevant impact in the post-pandemic inflationary surge in Brazil.