We present a version of the exchange-rate regime model of inflation. We then use quarterly data from Mexico during 1946.I-1995.I to test and estimate a simultaneous equation model for wage inflation, price inflation and industrial produciton. In doing so, we respect the Lucas critique and take into account the statistical properties of the data. The main empirical finding is that after the fall of the fixed exchange rate regime in 1976, there is a Barro-Gordon type inflation bias due to the inability of policy-makers to commit to low inflation.
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Paper provided by University of Exeter, School of Business and Economics in its series Discussion Papers with number
98/01.
Length: 23 pages Date of creation: 1998 Date of revision: Handle: RePEc:fth:exetec:98/01
Contact details of provider: Postal: School of Business and Economics University of Exeter Streatham Court Rennes Drive Exeter EX4 4PU Phone: (01392) 263218 Fax: (01392) 263242 Web page: http://www.exeter.ac.uk/sobe/ More information through EDIRC
Find related papers by 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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