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Time Series Approach to Test a Change in Inflation Persistence: The Mexican Experience

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Author Info
Manuel Ramos Francia
Daniel Chiquiar
Antonio E. Noriega

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Abstract

When monetary policy has an explicit inflation target, observed inflation should be a stationary process. In countries where, for a variety of reasons, the determinants of inflation could lead it to follow a non-stationary process, the adoption of an inflation targeting framework should therefore induce a fundamental change in the stochastic process governing inflation. This paper studies the time series properties of Mexican inflation during 1995-2006, using recently developed techniques to detect a change in the persistence of economic time series. Consistent with the adoption of an inflation-targeting framework, the results suggest that inflation in Mexico seems to have switched from a nonstationary to a stationary process around the end of year 2000 or the beginning of 2001.

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File URL: http://www.banxico.org.mx/documents/%7BCA5FFC8D-2EDB-9BF3-92EF-3CF0F6C00436%7D.pdf
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Publisher Info
Paper provided by Banco de México in its series Working Papers with number 2007-01.

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Date of creation: Jan 2007
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Handle: RePEc:bdm:wpaper:2007-01

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Web page: http://www.banxico.org.mx
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Related research
Keywords: Inflation; Persistence change; Stationarity; Unit root tests; Unknown direction of change;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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