During a large part of its recent history, the Mexican economy has experienced a moderate level of inflation. In this note some arguments are given against maintaining inflation in this range for long periods, not only in the sense that the long run costs are large and inevitable, but because the longer the inflation stays in the moderate rage, the smaller the probability of it decreasing in the near future becomes. A historical study of the inflationary behavior of countries that have had moderate inflation is undertaken. We show that the probability of staying for a long time in this inflation range is smaller than the probability of staying in the low inflation level, and that the probability of observing large jumps in inflation is greatly increased when the moderate inflation range is compared with the low inflation one. Another interesting result from this exercise is that disinflation programs that do not depend on an exchange rate anchor have had longer lasting results, than those depending on a fixed exchange rate. Lastly, the classic cases of moderate inflation countries are described and analyzed.
|Number of pages||36|
|State||Published - Oct 1 2000|