The reaction of Mexican inflation expectations to United States inflation expectations

Abstract

This dissertation examines the impact of U.S. inflation expectations on Mexican inflation expectations, differentiating in pre- and post-financial crisis periods. Using impulse-response functions and structural breaks testing the study finds that while short-run Mexican inflation expectations are responsive to U.S. shocks, long-run expectations remain robustly anchored, showing minimal responsiveness. Robustness checks, including analyses using only quarterly data, confirm these findings and suggest that after the financial crisis, short-run Mexican inflation expectations are more affected by shifts in US inflation expectations. These insights are crucial for policymaking, particularly for Banco de México, as they highlight the need to consider external economic influences in managing inflation expectations.