Inflation Volatility and Growth in a Stochastic Small Open Economy: A Mixed Jump-Diffusion Approach

Isela Téllez-León. (), Francisco Venegas-Martínez and Abigail Rodríguez-Nava. ()
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Isela Téllez-León.: Escuela Superior de Economía, Instituto Politécnico Nacional.
Abigail Rodríguez-Nava.: Departamento de Producción Económica, Universidad Autónoma Metropolitana-Xochimilco.
Authors registered in the RePEc Author Service: Abigail Rodríguez Nava

Economía: teoría y práctica, 2011, vol. 35, issue 2, 131-156

Abstract: The aim of this paper is to examine how inflation volatility affects economic growth in a small open economy. To reach this goal, a stochastic macroeconomic model with a financial sector and incomplete financial markets (due to the inclusion of jumps) is developed. It is assumed that the general price level is driven by mixed diffusion-jump process, that is, a Brownian motion governs inflation and a Poisson process guides unexpected an sudden jumps in the price index. The economic growth rate is endogenously determined, in the equilibrium, as a function of parameters of the inflation process.

Keywords: inflation; growth; stochastic models. (search for similar items in EconPapers)
JEL-codes: C6 E3 O4 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ety:journl:v:35:y:2011:i:2:p:131-156

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