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Inflation dynamics in Mexico: A characterization using the New Phillips curve

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  • Ramos-Francia, Manuel
  • Torres, Alberto
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    Abstract

    This paper describes the dynamics of inflation in the Mexican economy from 1992 to 2007 using the New Phillips curve framework. The purpose is to identify key structural characteristics of the economy (structural parameters) that define the short-run dynamics of inflation. Results show that despite a previous history of high inflation, a hybrid version of the New Phillips curve fits the data well for the period 1992-2007. The short-run dynamics of inflation in Mexico are best described when both backward- and forward-looking components are considered. In addition, estimates for the sub-sample 1997-2007 show that as inflation has fallen, on average prices remain fixed for a longer horizon, the fraction of firms that use a backward-looking rule of thumb to set their price decreases and the forward-looking component of the inflation process gains importance.

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    Bibliographic Info

    Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

    Volume (Year): 19 (2008)
    Issue (Month): 3 (December)
    Pages: 274-289

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    Handle: RePEc:eee:ecofin:v:19:y:2008:i:3:p:274-289

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    Web page: http://www.elsevier.com/locate/inca/620163

    Related research

    Keywords: Inflation dynamics Phillips curve;

    References

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    Cited by:
    1. Villarreal, Francisco G., 2014. "Monetary Policy and Inequality in Mexico," MPRA Paper 57074, University Library of Munich, Germany.
    2. Santiago García-Verdú, 2012. "The Evolution of Inflation Expectations in Mexico," Working Papers 2012-06, Banco de México.

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