Pricing Process in Mexico: New Evidence on the Inflation Dynamics

Produced by: 
Universidad EAFIT
Available from: 
March 2022
Paper author(s): 
Eduardo Gilberto Loría Díaz de Guzmán
Gustavo Javier Valdez Bonecchi
Mario Alberto Robles Juárez
Topic: 
Financial Economics
Year: 
2022

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 found: 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 the Great Recession; and d) expectations formation process changes during inflationary episodes according to the origin of shocks.

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