Pricing Process in Mexico: New Evidence on the Inflation Dynamics

We analyze the inflation dynamics in Mexico during inflation targeting period by a GMM estimate of the Hybrid New Keynesian Phillips Curve in its open and closed economy versions. We update and discuss previous results and expand the capacity of this tool to analyze inflationary dynamics by incorpor...

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Bibliographic Details
Published in:Ecos de economía 2021-01, Vol.25 (52), p.4-25
Main Authors: Loría Díaz de Guzmán, Eduardo Gilberto, Valdez Bonecchi, Gustavo Javier, Robles Juárez, Mario Alberto
Format: Article
Language:English
Subjects:
Cambio Estructural
Curva de Phillips Neokeynesiana Híbrida
Dinámica de la Inflación
ECONOMICS
Economía Abierta
Generalized Method of Moments
Hybrid New Keynesian Phillips Curve
Inflation Dynamics
Método Generalizado de Momentos
Open Economy
Structural Change
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Summary:We analyze the inflation dynamics in Mexico during inflation targeting period by a GMM estimate of the Hybrid New Keynesian Phillips Curve in its open and closed economy versions. We update and discuss previous results and expand the capacity of this tool to analyze inflationary dynamics by incorporating the exchange rate on labor costs. We find: a) robust evidence of adaptive and rational expectations; b) incorporating the exchange rate improves the inflation fit; c) this version of the Phillips Curve has strengthened since Great Recession, and e) expectations formation process changes during inflationary episodes according to the origin of shocks.
ISSN:1657-4206
2462-8107
DOI:10.17230/ecos.2021.52.1