Inflation Regimes in Latin America: Persistence and Dynamics

November 2023 · 🏆 Winner — FLAR Research Contest 2023 (Latin American Reserve Fund, first place, graduate category).

• inflation
• regime switching
• Hidden Markov Models
• Mahalanobis distance
• Latin America

Abstract

Uses a Hidden Markov Model and Mahalanobis distance-based influence measures to characterize inflationary regimes in Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico over 2020–2022, identifying which macroeconomic forces drive transitions between low- and high-inflation states in each country.

Conclusions

• Determinants are heterogeneous across countries: US inflation shifts dominate in Argentina; interest rates drive Costa Rica; demand-pull factors lead in Chile and Mexico; cost-push pressures are central in Brazil and Colombia.
• Nearly all countries display regime persistence except Argentina.

Materials

Code

• Python
• hmmlearn
• pandas
• matplotlib
• scipy

Media coverage: Semanario Universidad · El Mundo CR