DO EXPECTATIONS GUARANTEE STABILITY? GLOBAL SHOCKS AND INFLATION IN MEXICO
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Abstract
In the context of the Bank of Mexico’s centennial, this article examines the effectiveness of relying on inflation expectations as the anchor for monetary policy. Since the early 21st century, the central bank has operated under an inflation-targeting regime in which credibility and forward guidance play a fundamental role. We argue that expectations are a necessary but insufficient condition for achieving price stability. To test this hypothesis, we estimate an asymmetric nardl model for the period 2001M01-2025M06. The results confirm the existence of cointegration between inflation and a set of variables that include external shocks, whose transmission constrains the effectiveness of expectation anchoring. We conclude that monetary policy alone is not sufficient to ensure price stability; it must be complemented by fiscal and trade policies that mitigate the transmission of external disturbances in an uncertain global environment.
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References
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