Arbeitspapier
Explaining inflation with a classical dichotomy model and switching monetary regimes: Mexico 1932-2013
This paper applies a novel approach to study the impact of different shocks on the price level. It uses a classical dichotomy model with monetary policy regime shifts at known dates. First, there was a regime dominated by money, afterwards a regime driven by the exchange rate and a third one with inflation targeting. The result is a CVAR with constant long-run parameters but regime-dependent adjustment coefficients. This overcomes the challenge of explaining, within a single theoretical framework, inflation dynamics in Mexico since the country abandoned the gold standard. The model encompasses known results, offers new insights and clarifies decades-old debates on key aspects of the inflationary process such as inertia, the role of money, the exchange rate pass-through and the impact profile of other variables. The model proposed here is very parsimonious, it does not require inflation lags nor dummy variables. It also displays a very good pseudo out-of-sample forecasting performance
- Language
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Englisch
- Bibliographic citation
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Series: Working Papers ; No. 2017-20
- Classification
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Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Demand for Money
Monetary Policy
- Subject
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Money Velocity
Exchange Rate
Inflation
PPP
Fiscal Deficit
Cointegration
Monetary Regimes
Unbalanced Regressions
- Event
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Geistige Schöpfung
- (who)
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Garcés Díaz, Daniel G.
- Event
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Veröffentlichung
- (who)
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Banco de México
- (where)
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Ciudad de México
- (when)
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2017
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Garcés Díaz, Daniel G.
- Banco de México
Time of origin
- 2017
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