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Anchoring of Inflation Expectations in Light of Adverse Supply Shocks

Aguilar-Argaez Ana María, Gabriel Cuadra (), Ramírez Claudia and Daniel Samano ()

No 2014-20, Working Papers from Banco de México

Abstract: In order to create an environment of low and stable inflation in Mexico it has been necessary to generate a framework for the conduction of monetary policy focused on price stability along with fiscal discipline. This paper describes some structural achievements to control inflation that have been attained in Mexico. In addition, it shows empirical evidence in favor of the anchoring of inflation expectations, particularly those for the medium and long term, being recently strengthened. Considering three episodes, within the period 2004-2012, in which inflation was subject to different supply shocks, it finds that during the episode in 2012 inflation expectations showed greater stability. Results show that the response from inflation expectations to supply shocks has diminished over time, up to values that are not significantly different from zero. This suggests a strengthening of the credibility of the Bank of Mexico's commitment to price stability.

Keywords: inflation expectations; anchoring inflation expectations; cost-push shocks. (search for similar items in EconPapers)
JEL-codes: E52 E58 E65 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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