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.

Downloads

Download data is not yet available.
Abstract 1176 | PDF Downloads 956

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.