Pricing Process in Mexico: New Evidence on the Inflation Dynamics

Main Article Content

Eduardo Gilberto Loría Díaz de Guzmán, Dr. https://orcid.org/0000-0002-1597-3847
Gustavo Javier Valdez Bonecchi, Lic. https://orcid.org/0000-0003-4791-0223
Mario Alberto Robles Juárez, Lic. https://orcid.org/0000-0003-0025-7802

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.

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