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

  • Gary Shelley
  • Frederick Wallace

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.

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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 11 (2004)
Issue (Month): 4 ()
Pages: 223-225

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Handle: RePEc:taf:apeclt:v:11:y:2004:i:4:p:223-225
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  1. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  2. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
  3. 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.
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