Inflationary Dynamics in Guatemala

Short-run price dynamics for Guatemala are analyzedusing a linear transfer function methodology. This approach has previously been employed for other national economies such as the United States, Mexico, Colombia, Ecuador, and Nigeria. The data for this study range from 1960 to 2010. Inflation is measured using the consumer price index. Explanatory variables include the monetary base, real output, interest rates, and the exchange rate. Allof the estimated coefficients exhibit the arithmetic signs hypothesized by the theoretical model. Almostall of the parameter estimates satisfy the 5-percent significance criterion and all exhibit economically plausible magnitudes. Estimation results indicate that although monetary policy effects begin to materialize within twelve months of implementation, the bulk of the impacts associated with the money supply do not occur until the second year after any monetary policy action is taken.