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Time Series Approach to Test a Change in Inflation Persistence: The Mexican Experience

Listed author(s):
  • Manuel Ramos Francia
  • Daniel Chiquiar
  • Antonio E. Noriega

When monetary policy has an explicit inflation target, observed inflation should be a stationary process. In countries where, for a variety of reasons, the determinants of inflation could lead it to follow a non-stationary process, the adoption of an inflation targeting framework should therefore induce a fundamental change in the stochastic process governing inflation. This paper studies the time series properties of Mexican inflation during 1995-2006, using recently developed techniques to detect a change in the persistence of economic time series. Consistent with the adoption of an inflation-targeting framework, the results suggest that inflation in Mexico seems to have switched from a nonstationary to a stationary process around the end of year 2000 or the beginning of 2001.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7BCA5FFC8D-2EDB-9BF3-92EF-3CF0F6C00436%7D.pdf
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Paper provided by Banco de México in its series Working Papers with number 2007-01.

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Date of creation: Jan 2007
Handle: RePEc:bdm:wpaper:2007-01
Contact details of provider: Web page: http://www.banxico.org.mx

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