EconPapers    
Economics at your fingertips  
 

Inflation dynamics under different weather regimes: Evidence from Mexico

Daniel Ventosa-Santaulària, Edwin Tapia and Anna Karina Pérez-Peña

Ecological Economics, 2024, vol. 220, issue C

Abstract: In countries with substantial agricultural sectors, such as Mexico, extreme weather conditions linked to the El Niño-Southern Oscillation (ENSO) wield significant influence. This study focuses on Mexico, examining how ENSO affects the interplay between headline inflation (excluding energy) and economic activity. Employing a nonlinear local projection within two weather scenarios – acute and neutral – we uncover a notable disparity in inflationary dynamics. Notably, amidst acute weather conditions, a 1% shock in the output gap triggers a cumulative inflationary effect (over a 12-month horizon) 0.90% higher than under neutral environmental states. This discrepancy deviates inflation from Mexico’s Central Bank target because of supply constraints and demand pressures which mainly affect agricultural inflation. The results emphasize the urgency of incorporating environmental factors into inflation risk assessment for more informed monetary policy decisions. Additionally, this approach aids in isolating environmental influences from other inflation drivers.

Keywords: Inflation; Monetary policy; Economic activity; ENSO; El Niño; La Niña; Nonlinear local projections (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0921800924000764
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:220:y:2024:i:c:s0921800924000764

DOI: 10.1016/j.ecolecon.2024.108179

Access Statistics for this article

Ecological Economics is currently edited by C. J. Cleveland

More articles in Ecological Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:ecolec:v:220:y:2024:i:c:s0921800924000764