Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/336473 
Year of Publication: 
2025
Series/Report no.: 
Working Papers No. 2025-14
Publisher: 
Banco de México, Ciudad de México
Abstract: 
We estimate the slope of the Phillips curve in Mexico between 2005 and 2020 using city level data. We overcome the endogeneity of unemployment and core inflation through a panel instrumental variable strategy. Time-period fixed effects account for aggregate supply, demand, and expectation variables, while possible endogeneity between unemployment and core inflation at the city-quarter level is addressed with local labor demand shock instruments. We find a statistically significant Phillips curve linking local unemployment to local core inflation in Mexico, but this relationship is relatively weak: an increase of 1 percentage point in city-level unemployment lowers year-on-year core inflation by approximately 0.18 percentage points. We analyze city-level characteristics that relate to steeper Phillips curves, and find that informality rates, cash transfers, and some demographic characteristics in cities strengthen the relationship between unemployment and inflation.
Subjects: 
Phillips Curve
Core Inflation
Unemployment
Instrumental Variables
Panel Data
Labor Market
JEL: 
J23
C23
C26
E31
O54
Document Type: 
Working Paper
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