Inflation and Exchange Rate Regimes in Mexico

Posted: 24 Aug 1998

See all articles by Carmen A. Li

Carmen A. Li

University of Essex - Department of Economics

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); University of Essex

Elias Tzavalis

University of London - Queen Mary - Department of Economics

Abstract

We present a version of the exchange-rate regime model of inflation. We then use quarterly data from Mexico during 1946Q1-1995Q1 to test and estimate a simultaneous equation model for wage inflation, price inflation and industrial production. In doing so, we respect the Lucas critique and take into account the statistical properties of the data. The main empirical finding is that after the fall of the fixed exchange-rate regime in 1976, there is a Barro-Gordon type inflation bias due to the inability of policy-makers to commit to low inflation. There is no significant evidence of political business cycles in inflation.

JEL Classification: E31, F31

Suggested Citation

Li, Carmen A. and Philippopoulos, Apostolis and Tzavalis, Elias, Inflation and Exchange Rate Regimes in Mexico. Review of Development Economics. Available at SSRN: https://ssrn.com/abstract=114719

Carmen A. Li (Contact Author)

University of Essex - Department of Economics ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206 872723 (Phone)
+44 1206 872724 (Fax)

Apostolis Philippopoulos

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
GR-10434 Athens
Greece
+301 322 3187 (Phone)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Elias Tzavalis

University of London - Queen Mary - Department of Economics ( email )

Mile End Road
London, E1 4NS
United Kingdom

HOME PAGE: http//www.qmw.ac.uk/~ugte184/

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