Inflation Regimes in Latin America: Persistence and Dynamics
Published in None, 2023
Abstract Inflation shifts are in the spotlight in Latin America. This paper employs a Hidden Markov Model to uncover and test the persistence of inflationary regimes in six Latin American countries: Argentina, Brazil, Chile, Colombia, Costa Rica, and Mexico. It also uses an influence method based on the Mahalanobis distance to measure how a series of economic factors affect the path of inflation throughout the 2020-2022 period. Subsequently, I elaborate on a comparative dynamics analysis. The results show that monetary and international factors are the most important for the region and that the determinants of inflation are heterogeneous between countries. Specifically, US inflation shifts are crucial in defining the path of inflation in Latin American countries, representing the most relevant factor in Argentina. In addition, the study finds that Costa Rica is mainly affected by policy-related interest rates; demand-pull factors are central in Chile and Mexico, and cost-push elements strongly drive shifts in Brazil and Colombia. Inflation determinants are also time-varying and generally influence in different ways in consecutive periods. Finally, almost all countries display regime persistence, except for Argentina.
Keywords Inflation Determinants, Inflationary Regimes, Inflation Dynamics; Latin America
Info I recommend checking out the project’s code version, which is written in Python. Additionally, you can download the paper here to explore further details. I’ve also prepared slides for additional insights and information.
This project has been honored as the winner of the 2023 Research Contest by the Latin American Research Fund. For additional details, you can find more information here.
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