Pricing Process in Mexico: New Evidence on the Inflation Dynamics
Main Article Content
Keywords
Inflation Dynamics, Hybrid New Keynesian Phillips Curve, Generalized Method of Moments, Structural Change, Open Economy
Abstract
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.
Downloads
Download data is not yet available.
References
Andrews, W.K. (1999). Consistent Moment Selection Procedures for Generalized Method of Moments Estimation. Econometrica, 67 (3), pp. 543-564.
Andrews, W. K. & Fair, R.C. (1988). Inference in Nonlinear Econometric Models with Structural Change. The Review of Economic Studies, 55 (4), pp. 615-639.
Banco de México (2009). Informe anual 2008. Available at: https://www.banxico.org.mx/publicaciones-yprensa/informes-anuales/%7B27E0486F-9932-63AA-548C-7B325FF8C46E%7D.pdf
Banco de México (2012). Informe anual 2012. Available at: https://www.banxico.org.mx/publicaciones-yprensa/informes-anuales/%7BC58EAA68-F391-244E-9F07-F00A113B1E30%7D.pdf
Banco de México (2020). Sistema de Información Económica. Available at: http://www.banxico.org.mx/SieInternet/
Blanchard, O. J. (2008). The State of Macro. NBER Working Paper No. 14259. Available at: https://www.nber.org/papers/w14259
Blanchard, O. J. (2016). The Phillips Curve: Back to the ’60? American Economic Review, 106 (5), pp. 31-34.
Blanchard, O. J., Dell’Ariccia, G. & Mauro, P. (2010). Rethinking Macroeconomic Policy. Journal of Money, Credit and Banking, 42 (6), pp. 199-215.
Calvo, G. A. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 12 (3), pp. 383-398.
Carlin, W. & Soskice, D. W. (2015). Macroeconomics: Institutions, Instability and the Financial System. UK: Oxford University Press.
Cermeño, R., Villagómez, F. A. & Orellana, J. O. (2012). Monetary Policy Rules in a Small Open Economy: An Application to Mexico. Journal of Applied Economics, 15 (2), pp. 259-286.
Chowdhury, K. B. & Sarkar, N. (2017). Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies. Journal of Quantitative Economics, 15 (3), pp. 427-449.
Cunha, T. (2017). Dinâmica inflacionária no México: estimativas da curva de Phillips Nova-Keynesiana híbrida a partir da adoção do regime de metas. (bachelor thesis). Insper Instituto de Ensino e Pesquisa Faculdade de Economia e Administração, Sao Paulo.
Díaz, H. (2018). Inflación de 2017, la más alta en 17 años. El Financiero. Available at: https://www.elfinanciero.com.mx/economia/inflacion-de-2017-llega-a-un-nivel-de-77
Enders, W. (2004). Applied Time Series Econometrics. USA: John Wiley and Sons.
Expansión. (2019). Termina 2018 y la inflación queda lejos (otra vez) del objetivo de Banxico. Expansión. Available at: https://expansion.mx/economia/2019/01/09/termina-2018-inflacion-queda-lejos-delobjetivo-de-banxico
Federal Reserve Bank of St. Louis (2020). Federal Reserve Economic Data, FRED. Available at: https://fred.stlouisfed.org/
Ferreira, E., Arruda, M. T. & Castelar, L. I. (2018). Ciclos económicos, expectativas e inflación en el Brasil: análisis a partir de la curva de Phillips neokeynesiana. Revista de la CEPAL, 124, pp. 155-171.
Galí, J. & Gambetti, L. (2019). Has the U.S. Wage Phillips Curve Flattened? A Semi-Structural Exploration. NBER Working Paper No. 25476. Available at: https://www.nber.org/papers/w25476
Galí, J. & Gertler, M. (1999). Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, 44 (2), pp. 195-222.
Galí, J., Gertler, M. & López-Salido, J. D. (2001). European Inflation Dynamics. European Economic Review, 45 (7), pp. 1237-1270.
Galí, J., Gertler, M. & López-Salido, J. D. (2005). Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve. Journal of Monetary Economics, 52 (6), pp. 1107-1118.
Genberg, H. & Pauwels, L. L. (2003). An Open-Economy New Keynesian Phillips Curve: Evidence from Hong Kong. Pacific Economic Review, 10 (2), pp. 261-277.
Hall, A.R., Inoue, A., Jana, K. & Shin, C. (2007). Information in generalized method of moments estimation and entropy-based moment selection. Journal of Econometrics, Vo. 138 No. 2, pp. 488-512.
Hall, A. R. & Sen, A. (1999). Structural Stability Testing in Models Estimated by Generalized Method of Moments. Journal of Business and Economic Statistics, 17 (3), pp. 335-348.
Hansen, L. P. (1982). Large Sample Properties of Generalized Method of Moments Estimators. Econometrica, 50 (4), pp. 1029-1054.
Hansen, L. P. & Singleton, K. J. (1982). Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models. Econometrica, 50 (5), pp. 1269-1286.
Hodrick, R. J. & Prescott, E. C. (1997). Postwar US business cycles: an empirical investigation. Journal of Money, Credit, and Banking, 29 (1), pp. 1-16.
IHS Markit Inc. (2017). Generalized Method of Moments. Available at: http://www.eviews.com/help/helpintro.html#page/content/gmmiv-Generalized_Method_of_Moments.html
INEGI (2008). Encuesta Industrial Mensual. Available at: https://www.inegi.org.mx/programas/eim/1994/
INEGI (2015). Cálculo de los índices de productividad laboral y del costo unitario de la mano de obra. 2nd edition. Available at: https://www.inegi.org.mx/contenido/productos/prod_serv/contenidos/espanol/bvinegi/productos/nueva_estruc/702825188894.pdf
INEGI (2020a). Banco de Información Económica. Available at: https://www.inegi.org.mx/sistemas/bie/
INEGI (2020b). Encuesta Nacional de la Industria Manufacturera (EMIM) 2007-2019. Base 2008. Available at: https://www.inegi.org.mx/programas/emim/2007/
Kitamura, Y. & Phillips, P. C. (1997). Fully modified IV, GIVE and GMM estimation with possibly non-stationary regressors and instruments. Journal of Econometrics, 80 (1), pp. 85-123.
Lucas, R. E. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory, 4 (2), pp. 103-124.
Lucas, R. E. & Rapping, L. A. (1976). Real Wages, Employment, and Inflation. Journal of Political Economy, 77 (5), pp. 721-754.
Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica, 29 (3), pp. 315-335.
Martínez, T. (2017). La inflación de 2016 cierra en su mayor nivel en dos años. El Financiero. Available at: https://www.elfinanciero.com.mx/economia/inflacion-crece-en-diciembre-menos-de-lo-previsto
Medel, C. (2015). Dinámica inflacionaria y la curva de Phillips híbrida neokeynesiana: el caso de Chile. Monetaria, 37 (1), pp. 27-78.
Nason, J. & Smith, G. W. (2005). Identifying the New Keynesian Phillips Curve. Economics Department, Queen’s University. Available at: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1026.pdf
Nunes, R. (2010). Inflation Dynamics: The Role of Expectations. Journal of Money, Credit and Banking, 42 (6), pp. 1161-1172.
Phillips, A. W. (1958). The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957 1. Economica, 25 (100), pp. 283-299.
Powell, J. H. (2018). The Outlook for the U.S. Economy. Speech at the Economics Club of Chicago, Chicago, Illinois. April 6, Available at: https://www.federalreserve.gov/newsevents/speech/powell20180406a.htm
Ramos-Francia, M. & Torres, A. (2005). Reducción de la Inflación a Través de un Esquema de Objetivos de Inflación: La Experiencia Mexicana. Banco de México Working Paper no. 2005-01. Available at: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-demexico/%7B028AF129-4A5D-27AB-ECF0-A742DC571F1F%7D.pdf
Ramos-Francia, M. & Torres, A. (2008). Inflation dynamics in Mexico: A characterization using the New Phillips curve. The North American Journal of Economic and Finance, 19 (3), pp. 274-289.
Rodríguez, A. (2012). La curva de Phillips en México: ¿Existe una relación de largo plazo entre la inflación y la brecha del producto? EconoQuantum, 9 (1), pp.57-81.
Romer, C. & Romer, D. (1989). Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz. NBER Working Paper No. 2966. Available at: https://www.nber.org/papers/w2966#.
Rumler, F. & Valderrama, M. T. (2010). Comparing the New Keynesian Phillips Curve with time series models to forecast inflation. North American Journal of Economics and Finance, 21 (2), pp. 126-144.
Samuelson, P., & Solow, R. (1960). Analytical Aspects of Anti-Inflation Policy. The American Economic Review, 50 (2), pp. 177-194.
Stock, J. H. & Watson, M. W. (1999). Forecasting Inflation. Journal of Monetary Economics, 44 (2), pp. 293-335.
Stock, J. H. & Watson, M. W. (2007). Introduction to Econometrics (2nd ed.). USA: Pearson.
Stock, J. H. & Watson, M. W. (2008). Phillips Curve Inflation Forecasts. NBER Working Paper No. 14322. Available at: https://www.nber.org/papers/w14322
Szafranek, K. (2017). Flattening of the New Keynesian Phillips curve: Evidence for an emerging, small open economy. Economic Modelling, 63 Issue C, pp. 334-348.
U.S. Census Bureau (2011). X-12-ARIMA Reference Manual. Available at: https://www.census.gov/ts/x12a/v03/x12adocV03.pdf
Vašíček, B. (2011). Inflation Dynamics and the New Keynesian Phillips Curve in Four Central European Countries. Emerging Markets Finance & Trade, 47 (5), pp.71-100.
Andrews, W. K. & Fair, R.C. (1988). Inference in Nonlinear Econometric Models with Structural Change. The Review of Economic Studies, 55 (4), pp. 615-639.
Banco de México (2009). Informe anual 2008. Available at: https://www.banxico.org.mx/publicaciones-yprensa/informes-anuales/%7B27E0486F-9932-63AA-548C-7B325FF8C46E%7D.pdf
Banco de México (2012). Informe anual 2012. Available at: https://www.banxico.org.mx/publicaciones-yprensa/informes-anuales/%7BC58EAA68-F391-244E-9F07-F00A113B1E30%7D.pdf
Banco de México (2020). Sistema de Información Económica. Available at: http://www.banxico.org.mx/SieInternet/
Blanchard, O. J. (2008). The State of Macro. NBER Working Paper No. 14259. Available at: https://www.nber.org/papers/w14259
Blanchard, O. J. (2016). The Phillips Curve: Back to the ’60? American Economic Review, 106 (5), pp. 31-34.
Blanchard, O. J., Dell’Ariccia, G. & Mauro, P. (2010). Rethinking Macroeconomic Policy. Journal of Money, Credit and Banking, 42 (6), pp. 199-215.
Calvo, G. A. (1983). Staggered prices in a utility-maximizing framework. Journal of Monetary Economics, 12 (3), pp. 383-398.
Carlin, W. & Soskice, D. W. (2015). Macroeconomics: Institutions, Instability and the Financial System. UK: Oxford University Press.
Cermeño, R., Villagómez, F. A. & Orellana, J. O. (2012). Monetary Policy Rules in a Small Open Economy: An Application to Mexico. Journal of Applied Economics, 15 (2), pp. 259-286.
Chowdhury, K. B. & Sarkar, N. (2017). Is the Hybrid New Keynesian Phillips Curve Stable? Evidence from Some Emerging Economies. Journal of Quantitative Economics, 15 (3), pp. 427-449.
Cunha, T. (2017). Dinâmica inflacionária no México: estimativas da curva de Phillips Nova-Keynesiana híbrida a partir da adoção do regime de metas. (bachelor thesis). Insper Instituto de Ensino e Pesquisa Faculdade de Economia e Administração, Sao Paulo.
Díaz, H. (2018). Inflación de 2017, la más alta en 17 años. El Financiero. Available at: https://www.elfinanciero.com.mx/economia/inflacion-de-2017-llega-a-un-nivel-de-77
Enders, W. (2004). Applied Time Series Econometrics. USA: John Wiley and Sons.
Expansión. (2019). Termina 2018 y la inflación queda lejos (otra vez) del objetivo de Banxico. Expansión. Available at: https://expansion.mx/economia/2019/01/09/termina-2018-inflacion-queda-lejos-delobjetivo-de-banxico
Federal Reserve Bank of St. Louis (2020). Federal Reserve Economic Data, FRED. Available at: https://fred.stlouisfed.org/
Ferreira, E., Arruda, M. T. & Castelar, L. I. (2018). Ciclos económicos, expectativas e inflación en el Brasil: análisis a partir de la curva de Phillips neokeynesiana. Revista de la CEPAL, 124, pp. 155-171.
Galí, J. & Gambetti, L. (2019). Has the U.S. Wage Phillips Curve Flattened? A Semi-Structural Exploration. NBER Working Paper No. 25476. Available at: https://www.nber.org/papers/w25476
Galí, J. & Gertler, M. (1999). Inflation Dynamics: A Structural Econometric Analysis. Journal of Monetary Economics, 44 (2), pp. 195-222.
Galí, J., Gertler, M. & López-Salido, J. D. (2001). European Inflation Dynamics. European Economic Review, 45 (7), pp. 1237-1270.
Galí, J., Gertler, M. & López-Salido, J. D. (2005). Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve. Journal of Monetary Economics, 52 (6), pp. 1107-1118.
Genberg, H. & Pauwels, L. L. (2003). An Open-Economy New Keynesian Phillips Curve: Evidence from Hong Kong. Pacific Economic Review, 10 (2), pp. 261-277.
Hall, A.R., Inoue, A., Jana, K. & Shin, C. (2007). Information in generalized method of moments estimation and entropy-based moment selection. Journal of Econometrics, Vo. 138 No. 2, pp. 488-512.
Hall, A. R. & Sen, A. (1999). Structural Stability Testing in Models Estimated by Generalized Method of Moments. Journal of Business and Economic Statistics, 17 (3), pp. 335-348.
Hansen, L. P. (1982). Large Sample Properties of Generalized Method of Moments Estimators. Econometrica, 50 (4), pp. 1029-1054.
Hansen, L. P. & Singleton, K. J. (1982). Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models. Econometrica, 50 (5), pp. 1269-1286.
Hodrick, R. J. & Prescott, E. C. (1997). Postwar US business cycles: an empirical investigation. Journal of Money, Credit, and Banking, 29 (1), pp. 1-16.
IHS Markit Inc. (2017). Generalized Method of Moments. Available at: http://www.eviews.com/help/helpintro.html#page/content/gmmiv-Generalized_Method_of_Moments.html
INEGI (2008). Encuesta Industrial Mensual. Available at: https://www.inegi.org.mx/programas/eim/1994/
INEGI (2015). Cálculo de los índices de productividad laboral y del costo unitario de la mano de obra. 2nd edition. Available at: https://www.inegi.org.mx/contenido/productos/prod_serv/contenidos/espanol/bvinegi/productos/nueva_estruc/702825188894.pdf
INEGI (2020a). Banco de Información Económica. Available at: https://www.inegi.org.mx/sistemas/bie/
INEGI (2020b). Encuesta Nacional de la Industria Manufacturera (EMIM) 2007-2019. Base 2008. Available at: https://www.inegi.org.mx/programas/emim/2007/
Kitamura, Y. & Phillips, P. C. (1997). Fully modified IV, GIVE and GMM estimation with possibly non-stationary regressors and instruments. Journal of Econometrics, 80 (1), pp. 85-123.
Lucas, R. E. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory, 4 (2), pp. 103-124.
Lucas, R. E. & Rapping, L. A. (1976). Real Wages, Employment, and Inflation. Journal of Political Economy, 77 (5), pp. 721-754.
Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica, 29 (3), pp. 315-335.
Martínez, T. (2017). La inflación de 2016 cierra en su mayor nivel en dos años. El Financiero. Available at: https://www.elfinanciero.com.mx/economia/inflacion-crece-en-diciembre-menos-de-lo-previsto
Medel, C. (2015). Dinámica inflacionaria y la curva de Phillips híbrida neokeynesiana: el caso de Chile. Monetaria, 37 (1), pp. 27-78.
Nason, J. & Smith, G. W. (2005). Identifying the New Keynesian Phillips Curve. Economics Department, Queen’s University. Available at: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1026.pdf
Nunes, R. (2010). Inflation Dynamics: The Role of Expectations. Journal of Money, Credit and Banking, 42 (6), pp. 1161-1172.
Phillips, A. W. (1958). The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957 1. Economica, 25 (100), pp. 283-299.
Powell, J. H. (2018). The Outlook for the U.S. Economy. Speech at the Economics Club of Chicago, Chicago, Illinois. April 6, Available at: https://www.federalreserve.gov/newsevents/speech/powell20180406a.htm
Ramos-Francia, M. & Torres, A. (2005). Reducción de la Inflación a Través de un Esquema de Objetivos de Inflación: La Experiencia Mexicana. Banco de México Working Paper no. 2005-01. Available at: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-demexico/%7B028AF129-4A5D-27AB-ECF0-A742DC571F1F%7D.pdf
Ramos-Francia, M. & Torres, A. (2008). Inflation dynamics in Mexico: A characterization using the New Phillips curve. The North American Journal of Economic and Finance, 19 (3), pp. 274-289.
Rodríguez, A. (2012). La curva de Phillips en México: ¿Existe una relación de largo plazo entre la inflación y la brecha del producto? EconoQuantum, 9 (1), pp.57-81.
Romer, C. & Romer, D. (1989). Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz. NBER Working Paper No. 2966. Available at: https://www.nber.org/papers/w2966#.
Rumler, F. & Valderrama, M. T. (2010). Comparing the New Keynesian Phillips Curve with time series models to forecast inflation. North American Journal of Economics and Finance, 21 (2), pp. 126-144.
Samuelson, P., & Solow, R. (1960). Analytical Aspects of Anti-Inflation Policy. The American Economic Review, 50 (2), pp. 177-194.
Stock, J. H. & Watson, M. W. (1999). Forecasting Inflation. Journal of Monetary Economics, 44 (2), pp. 293-335.
Stock, J. H. & Watson, M. W. (2007). Introduction to Econometrics (2nd ed.). USA: Pearson.
Stock, J. H. & Watson, M. W. (2008). Phillips Curve Inflation Forecasts. NBER Working Paper No. 14322. Available at: https://www.nber.org/papers/w14322
Szafranek, K. (2017). Flattening of the New Keynesian Phillips curve: Evidence for an emerging, small open economy. Economic Modelling, 63 Issue C, pp. 334-348.
U.S. Census Bureau (2011). X-12-ARIMA Reference Manual. Available at: https://www.census.gov/ts/x12a/v03/x12adocV03.pdf
Vašíček, B. (2011). Inflation Dynamics and the New Keynesian Phillips Curve in Four Central European Countries. Emerging Markets Finance & Trade, 47 (5), pp.71-100.
Article Sidebar
Published
Mar 2, 2022
Article Details
How to Cite
Loría Díaz de Guzmán, E. G., Valdez Bonecchi, G. J., & Robles Juárez, M. A. (2022). Pricing Process in Mexico: New Evidence on the Inflation Dynamics. Ecos De Economía, 25(52), 4–25. https://doi.org/10.17230/ecos.2021.52.1
Issue
Section
Articles
Supporting Agencies
This article is part of the research project “Post-Covid society and economy in Mexico” (IN308021), DGAPA, UNAM.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).