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Inflation, money, and real GDP in Mexico: a causality analysis

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  • Gary Shelley
  • Frederick Wallace

Abstract

The relation between inflation, M1 money, and real GDP in Mexico is examined using annual data from 1944 to 1991. When investigating the relation between changes in inflation and real GDP growth it is found that it is important to separate the changes in inflation into predictable and unpredictable components. Predictable increases in differenced inflation are found to have a significant, negative effect on real GDP growth. Unpredictable increases in differenced inflation are found to have a significant, positive effect on real GDP growth. In contrast, changes in M1 growth fail to Granger-cause real GDP growth even when the changes in money growth are divided into predictable and unpredictable components.

Suggested Citation

  • Gary Shelley & Frederick Wallace, 2004. "Inflation, money, and real GDP in Mexico: a causality analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 223-225.
  • Handle: RePEc:taf:apeclt:v:11:y:2004:i:4:p:223-225
    DOI: 10.1080/1350485042000193834
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    References listed on IDEAS

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    1. Feliz, Raul Anibal & Welch, John H., 1997. "Cointegration and tests of a classical model of inflation in Argentina, Bolivia, Brazil, Mexico, and Peru," Journal of Development Economics, Elsevier, vol. 52(1), pages 189-219, February.
    2. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    3. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
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    Cited by:

    1. Zhou, Wei-Xing & Sornette, Didier, 2006. "Non-parametric determination of real-time lag structure between two time series: The "optimal thermal causal path" method with applications to economic data," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 195-224, March.
    2. D. Sornette & W. -X. Zhou, 2004. "Non-parametric Determination of Real-Time Lag Structure between Two Time Series: the "Optimal Thermal Causal Path" Method," Papers cond-mat/0408166, arXiv.org.

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