Mexico | The inflation persistence of Mexico and the United States

Summary

Applying the methodology in Reifschneider and Wilcox (2022), an econometric regression was estimated using as explanatory factors four lags of annualized quarterly inflation and the unemployment gap. The objective was to estimate inflation persistence and the coefficient of the Phillips curve.

Key points

• Key points:
• After having recorded persistence levels close to one during the 1970s, the estimates for the United States indicate that the persistence of core inflation has not been statistically different from zero (at a 5% significance level) from 2006Q4 through 2022Q1.
• Since inflation no longer depends on past inflation, this suggests a strong anchoring of inflation expectations by the Federal Reserve. The findings in Blanchard (2016) point in the same direction.
• In turn, the estimates for Mexico suggest that the persistence of core inflation was not statistically different from zero from 1998Q2 to 2003Q4.
• Nevertheless, from 2011Q4 to 2018Q3, the persistence of this inflation measure was not statistically different from one. Moreover, it is observed that this persistence declines to a level statistically below one during periods of economic recession.

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