In this article we analyse inflation expectations in Mexico. After a review of the theoretical and empirical literature, we apply unit root, normality and cointegration tests to the data provided by Banco de México (Banxico) in the Survey on the Expectations of the Private Sector Economics Specialists. Our results reject the null hypothesis of normality for inflation expectations over the period 2004:01-2011:12. The exchange rate has become one of the most relevant variables in the transmission mechanism of monetary policy in a small open economy. In this regard, we show the existence of a long-run relationship between nominal exchange rate and interest rate where inflation expectations matter for long-term dynamics.
Bibliographical noteFunding Information:
This article has been funded by the Vice-Rectorate of Research of the University of the Basque Country into the program ‘Personal Investigador en Formación’, and the Basque Government (Consolidated Research Group GIC10/153). We thank the useful comments of two anonymous referees. The usual disclaimer applies.
Copyright 2012 Elsevier B.V., All rights reserved.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics