The Inflation-Output Volatility Tradeoff and Exchange Rate Shocks in Mexico and Turkey

Alfonso Mendoza V.
Authors registered in the RePEc Author Service: Alfonso Mendoza-Velázquez ()

Central Bank Review, 2003, vol. 3, issue 1, 27-51

Abstract: Using a standard Vector Autorregresion with Autocorrelated Time Varying Covariances this paper finds evidence of a vertical inflation-output volatility tradeoff in Mexico and Turkey. It is found, contrary to common economic wisdom, that there is no tradeoff between output and inflation so that monetary policy affects only prices. In addition, it is observed that the exchange rate crucially affects the dynamics of prices, inflation and output. The pass-through from exchange rate to inflation is high and significant in both economies and periods of high exchange rate volatility are associated with unstable rates of inflation. Also, in agreement with many other studies, it is shown here that nominal depreciations are contractionary.

Keywords: Inflation-output Tradeoff; Exchange Rates; BEKK Models (search for similar items in EconPapers)
JEL-codes: C32 E3 F4 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:tcb:cebare:v:3:y:2003:i:1:p:27-51

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