Tradable vs. non-tradable sector productivity: impacts on inflationary trends

Abstract

This research investigates inflation dynamics in Mexico from 2001 to 2021, focusing on the passthrough effect of the productivity differential between tradable and non-tradable goods. Using the Autoregressive Distributed Lag (ARDL) model, the study examines the long-run relationships between these inflation rates, accounting for external factors such as exchange rates and US inflation. The findings indicate a significant cointegration relationship, highlighting a robust long-term equilibrium between tradable and non-tradable productivity differentials. The results underscore the influence of external shocks on domestic inflationary processes, particularly in light of Mexico’s persistent inflation rates, which consistently exceed target levels. This study contributes to the understanding of inflation dynamics, offering insights into the mechanisms driving sectoral inflation through differences in productivity.