Changes in Inflation Predictability in Major Latin American Countries

Abstract

La serie de Documentos de Investigación del Banco de México divulga resultados preliminares de trabajos de investigación económica realizados en el Banco de México con la finalidad de propiciar el intercambio y debate de ideas. El contenido de los Documentos de Investigación, así como las conclusiones que de ellos se derivan, son responsabilidad exclusiva de los autores y no reflejan necesariamente las del Banco de México.The Working Papers series of Banco de México disseminates preliminary results of economic research conducted at Banco de México in order to promote the exchange and debate of ideas. The views and conclusions presented in the Working Papers are exclusively the responsibility of the authors and do not necessarily reflect those of Banco de México.Abstract: Forecasts of inflation in the United States since the mid eighties have had smaller errors than in the past, but those conditional on commonly used variables cannot consistently beat the ones from univariate models. This paper shows through simple modifications to the classical monetary model that something similar occurred in those major Latin American economies that achieved their own "Great Moderation." For those countries that did not attain macroeconomic stability, inflation forecasting conditional on some variables has not changed. Allowing the parameters that determine Granger causality to change when the monetary regime does, makes possible the estimation of parsimonious inflation models for all available data (eight decades for one country and five for the others). The models so obtained ouperform others in pseudo out-of-sample forecasts for most of the period under study, except in the cases when an inflation targeting policy was successfully implemented.Resumen: Los pronósticos de inflación en Estados Unidos desde mediados de los ochentas han tenido errores más pequeños que en el pasado, pero aquellos condicionales en variables usadas comúnmente no pueden superar consistentemente a los de modelos univariados. Este artículo muestra a través de sencillas modificaciones al modelo monetario clásico que algo similar ocurrió en aquellas de las principales economías latinoamericanas que alcanzaron su propia "Gran Moderación". Para aquellos países que no lograron estabilidad macroeconómica, los pronósticos de inflación condicionales en algunas variables no han cambiado. El permitir que los parámetros que determinan la causalidad Granger cambien cuando el régimen monetario lo haga hace posible la estimación de modelos de inflación parsimoniosos para todos los datos disponibles (ocho décadas para un país y cinco para los otros). Los modelos así obtenidos superan a otros en pseudo pronósticos fuera de muestra para la mayor parte del período de estudio, excepto en los casos donde una política de objetivos de inflación fue implementada exitosamente. Palabras Clave: Dinero, tipo de cambio, cointegración, pronósticos de inflación.

The role of credit supply shocks in pacific alliance countries: A TVP-VAR-SV approach

“…In particular, volatility of GDP growth, in ‡ation, and interest rates appears to decline despite the 2008 …nancial crisis. These results can be partially explained by the implementation of …scal rules and in ‡ation targeting schemes in these countries, as documented by Garcés (2016) and Castillo et al (2016).…”

Explaining Inflation with a Classical Dichotomy Model and Switching Monetary Regimes: Mexico 1932-2013

“…Relation 18is the standard definition of the real exchange rate, rer t , where e is the nominal exchange rate pesos per dollar and p us t is the US price level. The residuals v and rer have to be stationary processes for equations (17) and (18) to be regarded as equilibrium conditions and not as tautologies. This was proved in the unit root tests of Table 1.…”

“…Equations (17) and (18) hold independently, as shown in Table 1, but it is useful to test their validity jointly. This result will be very useful to prove that there were regime changes at given dates.…”