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Anchoring of Inflation Expectations in Light of Adverse Supply Shocks

Author

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  • Aguilar-Argaez Ana María
  • Cuadra Gabriel
  • Ramírez Claudia
  • Sámano Daniel

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.

Suggested Citation

  • Aguilar-Argaez Ana María & Cuadra Gabriel & Ramírez Claudia & Sámano Daniel, 2014. "Anchoring of Inflation Expectations in Light of Adverse Supply Shocks," Working Papers 2014-20, Banco de México.
    • Handle: RePEc:bdm:wpaper:2014-20
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    File URL: https://www.banxico.org.mx/publicaciones-y-prensa/documentos-de-investigacion-del-banco-de-mexico/%7B2CF045DA-2CEA-0181-7919-17B3DB726256%7D.pdf
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    References listed on IDEAS

    as
    1. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    2. Andrew Powell & Rodrigo Mariscal & Pilar Tavella, 2018. "On the Credibility of Inflation-Targeting Regimes in Latin America," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-24, May.
    3. Carlos Capistr¡N & Manuel Ramos-Francia, 2010. "Does Inflation Targeting Affect the Dispersion of Inflation Expectations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 113-134, February.
    4. Refet S Gürkaynak & Andrew Levin & Eric Swanson, 2010. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from the U.S., UK, and Sweden," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1208-1242, December.
    5. Rodrigo Mariscal & Andrew Powell & Pilar Tavella, 2014. "On the Credibility of Inflation Targeting Regimes in Latin America," IDB Publications (Working Papers) 86253, Inter-American Development Bank.
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    More about this item

    Keywords

    inflation expectations; anchoring inflation expectations; cost-push shocks;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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