Price-Setting and Exchange Rate Pass-Through in the Mexican Economy: Evidence from CPI Micro Data

Kochen, Federico; Samano, Daniel

doi:10.36095/banxico/di.2016.13

Cited by 9 publications

(8 citation statements)

References 13 publications

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“…This equation highlights two important results: i) the ERPT is increasing in d t and ii) a higher inflation rate implies a higher ERPT. Figure VI Figure VII shows that the model that considers the NER as a variable that influences infla-42 The low level of pass-through is consistent with estimates in the literature for Mexico, see Albagli et al (2015), Capistrán et al (2011), Cortés-Espada (2013, and Kochen and Samano (2016). Furthermore, there is evidence of a declining ERPT in environments with more stable inflation and with the adoption of inflation targets (see Baqueiro et al (2003), Choudhri and Hakura (2006) and Lopez-Villavicencio and Mignon (2016)).…”

Section: The Role Of the Exchange Ratesupporting

confidence: 80%

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

López-Martín¹,

Aguilar²,

Samano³

2018

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This paper estimates a hidden Markov model where inflation is determined by government deficits financed through money creation and by expectations dynamics. The baseline model, proposed by Sargent et al. (2009) is able to distinguish between causes and remedies of hyperinflation, such as persistent or transitory shocks to fiscal deficits, and the de-anchoring of inflation expectations. The estimated sequence of monetized deficits provides an adequate account of inflation for the period 1969-94. The paper then extends the model to analyze the possibility that fiscal policy can affect inflation expectations in a context of Central Bank independence, as is the case of Mexico after 1994. Evidence is found that the exchange rate and sovereign interest rate spreads influence the evolution of inflation.Resumen: Este documento estima un modelo de Markov oculto en el cual la inflación se determina a partir de déficits fiscales financiados mediante emisión monetaria así como por la dinámica de expectativas de inflación. El modelo base, propuesto por Sargent et al. (2009), es capaz de distinguir entre las causas y remedios de procesos de alta inflación tales como choques temporales o persistentes en los déficits fiscales y el desanclaje en las expectativas de inflación. La secuencia estimada de déficits monetizados permite explicar el comportamiento de la inflación entre 1969-94. Este documento extiende el modelo para incorporar la posibilidad que la política fiscal pueda influir las expectativas de inflación en un contexto de independencia del Banco Central, caso de México desde 1994. Se presenta evidencia que sugiere que las fluctuaciones en el tipo de cambio así como en el diferencial de tasas soberanas EMBI influyen sobre la evolución de la inflación. Palabras Clave: Inflación, Expectativas de Inflación, Déficit Fiscal *Este documento es parte de la Red de Investigación Conjunta 2017 del CEMLA. Estamos especialmente agradecidos con Daniel Chiquiar y con Andrea Tambalotti, nuestro asesor académico, por sus comentarios en el transcurso de este proyecto. Agradecemos, por sus comentarios, a Nicolás

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Section: The Role Of the Exchange Ratesupporting

confidence: 80%

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

López-Martín¹,

Aguilar²,

Samano³

2018

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“…In this section we analyze an extension of the baseline model that considers the sovereign interest rate spread EMBI, a variable that captures the perception of the 41 The low level of pass-through is consistent with estimates in the literature for Mexico, see Albagli et al (2015), Capistrán et al (2011), Cortés-Espada (2013), and Kochen and Samano (2016). Furthermore, there is evidence of a declining ERPT in environments with more stable ination and with the adoption of ination targets (see Baqueiro et al (2003), Choudhri and Hakura (2006) and Lopez-Villavicencio and Mignon (2016)).…”

Section: The Role Of the Embi Spreadsupporting

confidence: 61%

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

López-Martín¹,

Aguilar²,

Samano³

2018

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Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail. Note that link provided above includes additional terms and conditions of the license. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.

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“…Conversely, the Mexican peso-USD nominal exchange rate presented some important fluctuations during the period, and more recently have shown a depreciation pattern from the end of 2014 onward. Nonetheless, in a recent paper, Kochen and Sámano (2016) show that the exchange rate pass-through to consumer prices in the Mexican economy is low. In terms of economic activity, after the 2008-2009 global financial crisis, real output has been increasing at an annual rate of 2.8% during the sample period.…”

Section: Sample Coveragementioning

confidence: 95%

Price-Setting in Mexico and the Real Effects of Monetary Shocks

Kochen¹

2016

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La serie de Documentos de Investigación del Banco de México divulga resultados preliminares de trabajos de investigación económica realizados en el Banco de México con la finalidad de propiciar el intercambio y debate de ideas. El contenido de los Documentos de Investigación, así como las conclusiones que de ellos se derivan, son responsabilidad exclusiva de los autores y no reflejan necesariamente las del Banco de México.The Working Papers series of Banco de México disseminates preliminary results of economic research conducted at Banco de México in order to promote the exchange and debate of ideas. The views and conclusions presented in the Working Papers are exclusively the responsibility of the authors and do not necessarily reflect those of Banco de México. Abstract: In this paper I use novel micro data underlying the Mexican CPI to establish stylized facts about prices in the Mexican economy. I then analyze the implications and consistency of the empirical results for the degree of monetary non-neutrality generated in both time and state-dependent pricing models. I find that the real effects of monetary shocks importantly depend on the type of nominal rigidity considered and on the treatment of sales in the statistics that are calibrated into the models.

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Price-Setting and Exchange Rate Pass-Through in the Mexican Economy: Evidence from CPI Micro Data

Cited by 9 publications

References 13 publications

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

Price-Setting in Mexico and the Real Effects of Monetary Shocks

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