An Analysis of the Predictability of Brazilian Inflation Indexes by Information Theory Quantifiers

This research explorer the predictability of the Brazilian inflation monthly price indexes time series by information theory quantifiers. Given this, we apply the Bandt and Pompe method to estimate the information theory quantifiers, specifically the Permutation entropy (𝐻𝑠) and the Fisher information measure (𝐹𝑠). Based on the values of both complexity measures, we construct the 2D plane called the Shannon-Fisher causality plane, which allows us to explore the disorder and quantify the randomness inherent to the temporal evolution of the significant Brazilian inflation indexes. Also, we apply 𝐻𝑠 and 𝐹𝑠 to rank the Brazilian inflation indexes based on the complexity hierarchy. An overview show that the Brazilian inflation indexes display lower entropy which implies in higher predictability. The sliding window approach reveal that Brazilian inflation indexes (IPA, IPCA, IGP, IPC, and INPC) present decrease related to efficiency. The only exception is the INCC, which show an increase in efficiency