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Inflation Dynamics in Mexico: A Characterization Using the New Phillips Curve

  • Manuel Ramos Francia
  • Alberto Torres García
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    The paper describes the dynamics of inflation in the Mexican economy from 1992 to 2006 using the New Phillips curve framework. The purpose is to identify key structural characteristics of the economy (structural parameters) that define the short-run dynamics of inflation. Results show that despite a previous history of high inflation, a hybrid version of the New Phillips curve fits the data well for the period 1992-2006. The short-run dynamics of inflation in Mexico are best described when both backward and forward looking components are considered. In addition, estimates for the sub-sample 1997-2006 show that as inflation has fallen, on average, prices remain fixed for a longer horizon, the fraction of firms that use a backward looking rule of thumb to set their price decreases and the forward looking component of the inflation process gains importance.

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    File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7BDF19BE24-9E61-2159-B065-1BD2F3D76FAE%7D.pdf
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    Paper provided by Banco de México in its series Working Papers with number 2006-15.

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    Date of creation: Dec 2006
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    Handle: RePEc:bdm:wpaper:2006-15
    Contact details of provider: Web page: http://www.banxico.org.mx

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    12. Matheson, Troy D., 2008. "Phillips curve forecasting in a small open economy," Economics Letters, Elsevier, vol. 98(2), pages 161-166, February.
    13. Manuel Ramos Francia & Alberto Torres García, 2005. "Reducing Inflation Through Inflation Targeting: The Mexican Experience," Working Papers 2005-01, Banco de México.
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