Year: 2025
Type: article
Abstract: This study examines the dynamic relationship between inflation, inflation uncertainty, and economic performance in Mexico using the Generalized Autoregressive Conditional Heteroskedasticity-in-Mean (GARCH-M) and bivariate GARCH-in-mean (BGARCH-M) models. Based on monthly data from 1995 to 2019, the analysis estimates nominal uncertainty and evaluates its macroeconomic implications under Mexico’s inflation-targeting regime. The results indicate a significant and positive link between past inflation and future uncertainty, underscoring the importance of maintaining low and stable inflation to contain volatility. Furthermore, inflation uncertainty is found to exert a negative influence on economic performance, particularly in terms of output variability. However, the study does not find conclusive evidence that inflation uncertainty declined following the formal adoption of inflation targeting. These findings suggest that, while Mexico has achieved price stability, inflation uncertainty remains sensitive to external shocks and policy credibility. The study contributes to the broader literature by reassessing the effectiveness of inflation targeting in an increasingly globalized and volatile environment, offering important lessons for emerging economies managing external vulnerabilities and institutional constraints.
Source: Economies
Author: Domicio Cano-Espinosa
Institution: Universidad de Panamá
Language: English
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,172
OpenAlex ID: W4409482157