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Inflation and Exchange Rate Regimes in Mexico

Author

Listed:
  • Carmen A. Li
  • Apostolis Philippopoulos
  • Elias Tzavalis

Abstract

The paper presents a version of the exchange‐rate‐regime model of inflation. Quarterly data from Mexico from 1946 to 1995 are used to estimate and test a simultaneous‐equation model for wage inflation, price inflation and industrial production, taking account of the Lucas critique and the statistical properties of the data. The main finding is that, after the fall of the fixed‐exchange‐rate regime in 1976, there was a Barro–Gordon type inflation bias owing to the inability of policymakers to commit to low inflation. There is no significant evidence of political business cycles in inflation.

Suggested Citation

  • Carmen A. Li & Apostolis Philippopoulos & Elias Tzavalis, 2000. "Inflation and Exchange Rate Regimes in Mexico," Review of Development Economics, Wiley Blackwell, vol. 4(1), pages 87-100, February.
  • Handle: RePEc:bla:rdevec:v:4:y:2000:i:1:p:87-100
    DOI: 10.1111/1467-9361.00080
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    Cited by:

    1. Chelley-Steeley, Patricia & Lambertides, Neophytos & Savva, Christos S., 2013. "Illiquidity shocks and the comovement between stocks: New evidence using smooth transition," Journal of Empirical Finance, Elsevier, vol. 23(C), pages 1-15.
    2. Giannellis, Nikolaos & Koukouritakis, Minoas, 2013. "Exchange rate misalignment and inflation rate persistence: Evidence from Latin American countries," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 202-218.
    3. Patricia Chelley‐Steeley & Neophytos Lambertides & Christos S. Savva, 2019. "Sentiment, order imbalance, and co‐movement: An examination of shocks to retail and institutional trading activity," European Financial Management, European Financial Management Association, vol. 25(1), pages 116-159, January.
    4. Thomas M Fullerton Jr & Roberto Tinajero, 2004. "Short-Run Price Dynamics in Mexico," Macroeconomics 0407027, University Library of Munich, Germany.
    5. Chelley-Steeley, Patricia & Lambertides, Neophytos & Savva, Christos S., 2015. "The effect of security and market order flow shocks on co-movement," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 136-155.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance

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