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Dual inflation takes place when price increases in non-tradable goods are higher than those of tradable goods. In this paper, we develop a simple model where public spending has a positive externality on the production of both sectors. The main results suggested by the paper are the following: i) An increase in non-productive public spending does not generate dual inflation, as the usual Balassa- Samuelson result states ii) An increase in productive public spending rises the productivity of both sectors and this can result in dual inflation, dual deflation or no effect on prices; and, iii) Dual inflation only takes place when productive public spending has a higher effect on the technology of the tradable sector than on the non-tradable one, as illustrated in the Spanish data. [ABSTRACT FROM AUTHOR]

This paper shows the effects of uncertainty of economic growth and inflation on average rates of output growth and inflation, using quarterly data of Argentina, during the last three decades. The paper employs a GARCH-M model (VAKMA model) that permits to test diagonally and symmetry relationships between the variables. The results suggest that increased growth uncertainty is associated with significantly higher average output growth (theory of precautionary savings), while higher inflation uncertainty is correlated with lower average output growth (Okun, 1971, and Friedman, 1977, arguments). Both inflation and economic growth show evidence of significant asymmetric response to positive and negative shocks of equal magnitude. [ABSTRACT FROM AUTHOR]

This paper introduces an indicator of consumers' inflation expectations based on data from the National Consumer Confidence Survey of Mexico, and tests its predictive power over CPI inflation and other measures of inflation that correspond to smaller baskets of consumer goods, for periods that range from 1 to 12 months. Our findings show that between January 2003 and September 2010, the predictive capability of the indicator over the different measures of inflation used was weak. Due to a modification in the survey questionnaire in October 2010, as of that date we observe a significant change in the responses and, thus, in the behavior of the indicator of consumers' inflation expectations. For this reason, from October 2010 on the main use of this indicator is to be a reference of consumers' confidence in price stability. [ABSTRACT FROM AUTHOR]

This paper estimates a GARCH-M model of inflation for Bolivia and investigates its linkages with resulting measures of inflation uncertainty. Utilizing a consumer price index constructed by combining six different official indices, the main findings are as follows: inflation and inflation uncertainty have both declined steadily since the late 1980s, when the hyperinflation period finally ended. For the period between 1937 and 2011 -- and for other sub-periods within 1937-2011 -- inflation has a significant and positive effect on uncertainty, supporting the hypothesis formulated separately by Friedman and Ball. An implication of this finding is that the Central Bank of Bolivia can achieve lower inflation uncertainty by lowering the inflation rate. [ABSTRACT FROM AUTHOR]

Inflation has been constantly studied at national level because its negative effects over the economy, however this problem has generally been ignored at regional scale, mainly because the assumption that regions have a homogeneous inflation behavior. Expanding the Paredes and Aroca (2008) methodology to the temporal dimension and using National Statistics Institute (INE) data, this paper contributes with an estimation of regional housing inflation for Chilean regions. Main results suggest that regions besides bear different cost of living (higher for extreme regions than those in the center), are also showing heterogeneous speed in their price evolution process. This result suggests that effects of housing policies (and potentially other sectors policies) are heterogeneous between regions and more inefficient than those that could be implemented when taking account of the different regional inflation pattern. [ABSTRACT FROM AUTHOR]

This paper presents an econometric analysis of the demand for the monetary aggregate M1 for Mexico. Using cointegration techniques, we identify both a stable long-run relationship between M1 and its determinants, and a statistically sound single-equation error-correction model. Results are used to carry out the following simple applications: i) empirical determination of the value and stability of dual inflationary equilibria, given the observed seigniorage levels; ii) calculation of the seigniorage maximizing inflation rate, and iii) analysis of the potential relationship between a measure of excess money and inflation. Results indicate that the low inflation equilibrium is stable, and that the excess money indicator shows, in retrospective, some capacity in predicting inflationary pressures. [ABSTRACT FROM AUTHOR]

This paper examines the behavior of real GDP (levels and growth rates), unemployment, inflation, bank credit, and real estate prices in a twenty one-year window surrounding selected adverse global and country-specific shocks or events. The episodes include the 1929 stock market crash, the 1973 oil shock, the 2007 U.s. subprime collapse and fifteen severe post-World War II financial crises. The focus is not on the immediate antecedents and aftermath of these events but on longer horizons that compare decades rather than years. While evidence of lost decades, as in the depression of the 1930s, 1980s Latin America and 1990s Japan are not ubiquitous, GDP growth and housing prices are significantly lower and unemployment higher in the ten-year window following the crisis when compared to the decade that preceded it. Inflation is lower after 1929 and in the post-financial crisis decade episodes but notoriously higher after the oil shock. We present evidence that the decade of relative prosperity prior to the fall was importantly fueled by an expansion in credit and rising leverage that spans about 10 years; it is followed by a lengthy period of retrenchment that most often only begins after the crisis and lasts almost as long as the credit surge. [ABSTRACT FROM AUTHOR]

This paper develops, under the framework of a small, open, and monetary economy, a stochastic model of inflation stabilization taking as a nominal anchor the exchange rate when credibility is imperfect. The agents have expectations driven by two processes: a diffusion-jump process for the devaluation rate where the size of a possible devaluation has an extreme value distribution, and a mean-reverting stochastic volatility process (a continuous version of the GARCH (1,1) model). This appropriately models that inflation is substantially more persistent than the devaluation rate; as showed the stylized facts about extreme devaluations registered in Mexico in 1994 and in Argentina in 2001. It is assumed that there is no a derivatives market to hedge against future devaluations, that is, the financial markets are incomplete. Under this framework, interior and corner solutions are examined when a stabilization plan with imperfect credibility is implemented. It is also studied an experiment in which the mean expected inflation takes a greater value from some time in the future and stays there forever, taking into account the probability that this monetary policy occurs. The case of a stochastic horizon of stabilization with the exponential distribution is studied. Moreover, the real option to postpone consumption is valued when a stabilization plan is to be abandoned. Also, exogenous shocks on consumption and economic welfare are assessed. Finally, the proposed model is used to carry out simulations that reproduce the booms of private consumption before the anti-inflationary plans were abandoned in Mexico in 1990-1994 and in Argentine in 2001-2003, when extreme devaluations took place. [ABSTRACT FROM AUTHOR]

This paper introduces the concept of "debt intolerance," which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. We argue that "safe" external debt-to-GNP thresholds for debt intolerant countries are low, perhaps as low as 15 percent in some cases. These thresholds depend on a country's default and inflation history. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assess the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. Our goal is to make a first pass at quantifying debt in- tolerance, including delineating debtors' clubs and regions of vulnerability, on the basis on a history of credit events going back to the 1820s for over 100 countries. [ABSTRACT FROM AUTHOR]

Housing prices in Spain have increased sharply since 1999, increasing the financial effort households need to make to buy a house. Inflation data, based on the HIPC (Harmonized Index of Consumer Prices), fell to very low values during this period. Since the composition of the HIPC does not include housing prices, a problematic question arises: Are we measuring inflation correctly? In this paper, we offer a methodological strategy to correct inflation measurement bias due to how housing is treated in the HIPC. [ABSTRACT FROM AUTHOR]

The main goals of this paper are firstly, to critically examine the ECB's official monetary policy strategy concerning its three fundamental topics: the definition of price stability, the analysis framework, and communication to the public on its decisions and achievements; and secondly, to empirically analyze its decision-making policies for the period 1999-2005, in order to confirm if these decisions taken are in fact sufficiently related to the ECB's official strategy or, on the contrary, if there is a different implicit strategy underlying claims. The empirical work to explain interest rate setting is carried out by means of several approaches: calibrated, intra-temporary, and inter-temporary with the generalized method of moments. The conclusions are clear: The implicit inflation target is around 1.9%, very close to 2%, as stated by the ECB in the evaluation of its monetary policy strategy in 2003. We contend that the approach of this institution is forward-looking on underlying inflation, and backward-looking with regard to the business cycle, showing a certain tendency towards extending the temporary horizon in both cases. The inflation aversion coefficient value follows the Taylor principle and, finally, the consideration given by the ECB to the effect of economic growth on interest rate setting is small. [ABSTRACT FROM AUTHOR]

This paper shows that an economic policy change in 1982 brought about a conspicuous alteration in the relationship between money, prices and the exchange rate in Mexico. Before that year, the long-term demand for currency fit the velocity equation, and inflation was driven mainly by the money gap. After a striking changeover, from 1983 until 2000, the demand for money took a very different form, and inflation was determined by the markup without an explicit currency effect. However, the long-term relationship that links the levels of output, the exchange rate and foreign prices with that of nominal money holds for the whole sample. [ABSTRACT FROM AUTHOR]

This paper presents a robust finding for the relationship between money growth and inflation in Chile: inflation causes (precedes) money and not the other way around. This result holds irrespectively of the way in which monetary policy was conducted, the sample period, the choice of monetary aggregate, the consideration of conditional second moments, or the inclusion of inflation targets. A simple theoretical model is used to motivate why money and inflation are not necessarily correlated. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to determine whether elections in Mexico affect the growth of GNP, unemployment, inflation and public expenditure. According to the results of an econometric exercise elections have no effect on all these variables except for public expenditure. It turns out that public expenditure increases just before the presidential elections having no effect on the economic cycle. [ABSTRACT FROM AUTHOR]

This paper examines the impact of the monetary policy of the United States, using the interest rate as instrument, on unemployment and inflation rates of Puerto Rico: an economy with special features. We discuss a theoretical model that support the construction of a VAR system defined by the three Variables mentioned. The empirical estimations indicated that the U.S. monetary policy actions precede the movements of the two economics indicators of the Island. Any implementation of the monetary policy is transmitted directly to prices in short run, and to the real sector, in the long run. [ABSTRACT FROM AUTHOR]

This paper presents the first historical series of poverty and inequality in Mexico for the period 1950-2004. We observe that poverty reduces continuously between 1950 and 1984, and remains constant, with the exception of 1996, where it increases sharply. With regards to inequality, this variable follows an inverted U trend between 1950 and 1984, similar to the Kuznets curve; however, it increases almost continuously from 1984 on. We also show that during 1950-2004 the correlation between poverty and economic growth has been strong and negative, the correlation between poverty and inflation has been strong and positive, and the correlation between poverty and inequality has also been positive. [ABSTRACT FROM AUTHOR]

This study takes stock of the institutional reform of monetary policy in Latin America since the early 1990s. It argues that strengthening the legal independence of central banks, together with macroeeonomic policies, was instrumental in reducing inflation from three-digit annual rates in the 1990s to single-digit territory in 2004. The paper also discusses the main challenges of monetary policy today, namely, achieving price stability, restoring market confidence in domestic currencies, and sticking to policy consistency despite adverse effects of the volatility of capital flows. Finally, recurrent banking crises and lack of fiscal discipline are identified as the main risks for the success of monetary policy in Latin America. [ABSTRACT FROM AUTHOR]