Inflation, Output and Economic Policy in Mexico
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| Format: | Artículo científico |
| Sprache: | en |
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Universidad Nacional Autónoma de México
2008
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| _version_ | 1876490996078870528 |
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| author | Víctor M. Cuevas Ahumada |
| author_facet | Víctor M. Cuevas Ahumada |
| contents | Inflation, Output and Economic Policy in Mexico Víctor M. Cuevas Ahumada Economía y Finanzas error output Inflation monetary policy correction model This paper investigates the leading sources of inflationary pressure and outputvariations in the Mexican economy. To this end, we make use of a multivariate errorcorrectionmodel, which is consistent with a small open economy with a floatingexchange rate system. As our object is to let the data expose the key determinants ofprices and output, we resort to a broad aggregate demand-aggregate supply modelconsisting of three markets: goods, money, and labor. Taken as a whole, the empiricalevidence suggests that monetary expansions are basically accommodated through ahigher price level, rather than a higher economic activity. In the short run, real exchangerate depreciations produce a moderate effect on inflation and an insignificant effecton output. In the long run, however, an undervalued currency results in productionlosses. In addition, we find that i) both inertial inflation and inflationary expectationsare among the driving forces of price instability, and ii) shocks to nominal wages arerecessionary at impact and this negative effect is persistent over time. Lastly, nominalwages are a positive function of capacity utilization and the expected rate of inflation,thereby suggesting a forward-looking wage adjustment process. As we shall see, thesefindings have some relevant implications not only for the monetary and the exchangerate policies, but also for the so-called central bank´s credibility 2008 artículo científico 0185-1667 https://www.redalyc.org/articulo.oa?id=60126503 en http://www.redalyc.org/revista.oa?id=601 Investigación Económica application/pdf Universidad Nacional Autónoma de México Investigación Económica (México) Num.265 Vol.LXVII |
| format | Artículo científico |
| id | redalyc_60126503 |
| institution | Redalyc |
| language | en |
| publishDate | 2008 |
| publisher | Universidad Nacional Autónoma de México |
| spellingShingle | Inflation, Output and Economic Policy in Mexico Víctor M. Cuevas Ahumada Economía y Finanzas error output Inflation monetary policy correction model Inflation, Output and Economic Policy in Mexico Víctor M. Cuevas Ahumada Economía y Finanzas error output Inflation monetary policy correction model This paper investigates the leading sources of inflationary pressure and outputvariations in the Mexican economy. To this end, we make use of a multivariate errorcorrectionmodel, which is consistent with a small open economy with a floatingexchange rate system. As our object is to let the data expose the key determinants ofprices and output, we resort to a broad aggregate demand-aggregate supply modelconsisting of three markets: goods, money, and labor. Taken as a whole, the empiricalevidence suggests that monetary expansions are basically accommodated through ahigher price level, rather than a higher economic activity. In the short run, real exchangerate depreciations produce a moderate effect on inflation and an insignificant effecton output. In the long run, however, an undervalued currency results in productionlosses. In addition, we find that i) both inertial inflation and inflationary expectationsare among the driving forces of price instability, and ii) shocks to nominal wages arerecessionary at impact and this negative effect is persistent over time. Lastly, nominalwages are a positive function of capacity utilization and the expected rate of inflation,thereby suggesting a forward-looking wage adjustment process. As we shall see, thesefindings have some relevant implications not only for the monetary and the exchangerate policies, but also for the so-called central bank´s credibility 2008 artículo científico 0185-1667 https://www.redalyc.org/articulo.oa?id=60126503 en http://www.redalyc.org/revista.oa?id=601 Investigación Económica application/pdf Universidad Nacional Autónoma de México Investigación Económica (México) Num.265 Vol.LXVII |
| title | Inflation, Output and Economic Policy in Mexico |
| topic | Economía y Finanzas error output Inflation monetary policy correction model |
| url | https://www.redalyc.org/articulo.oa?id=60126503 |