Poverty, inequality and macroeconomic instability

Abstract

Over the past seventeen years the Brazilian macroeconomic performance has been considerably weaker than in previous decades. Inflation reached unprecedented levels and economic growth declined considerably. In this study we use monthly time series to access the relation between this weak and unstable macroeconomic performance on poverty and inequality. The estimates using aggregated and pooling time series reveal that inflation seems to have little association with inequality and particularly with poverty. However, since the variation in the monthly inflation rate over the past seventeen years has been very substantial, the associated variation of poverty became quite significant. As far as the impact of unemployment is concerned, the estimates indicate relatively weak relation between this variable and poverty or inequality. Finally, time-varying regressions indicate that the major results of this study, although applicable to most of the period analyzed, may not necessarily reflect the current situation. In fact, the time-varying estimates reveal a sharp recent decline in the association between unemployment and poverty or inequality, consistent with the drop in poverty and inequality in 1995, despite a considerably increase in the unemployment rate. There is also evidence that the relation between inflation and poverty or inequality declines as inflation accelerates.