Inflation and relative price variability in Mexico: the role of remittances

Abstract

This article derives generalized impulse responses from the estimation of a vector autoregression (VAR) model using monthly data between 1995 and 2005 for Mexico, to examine the inflation–relative price variability (RPV) relationship, and to investigate if remittances could account for the observed relationship. While the positive relationship between inflation and RPV is a robust result, remittances are found to have significant positive effects on both inflation and RPV. These results are interpreted as providing evidence in support of our intuition that remittances could be responsible for generating a positive relationship between inflation and RPV.