Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240662 
Year of Publication: 
2018
Series/Report no.: 
Working Papers No. 2018-21
Publisher: 
Banco de México, Ciudad de México
Abstract: 
We explore the dynamics of inflation, inflation expectations, and seigniorage-financed fiscal deficits in Mexico. To do so, we estimate the model in Sargent, Williams, and Zha (2009) using Mexican CPI inflation data. This model features dual expected inflation equilibriums and regime switching in the mean and variance of the fiscal deficit probability density function. We examine the dynamics of inflation and mean fiscal deficit regimes. In addition, we comment on the extent to which our results match to key economic events. Mexico has successfully stabilized inflation expectations for the past decades, an achievement for which fiscal policy has been fundamental. Nevertheless, this does not preclude the possibility of an increase in the expected price level or a switch to a regime in which inflation and its expectations become unstable.
Subjects: 
Inflation
Inflation Expectations
Public Deficit
Fiscal Deficit
Regime-Switching
Monetary Policy
Fiscal Policy
JEL: 
E31
D84
H62
E52
E62
C01
Document Type: 
Working Paper
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