Transitory Inflation Shocks: A Structural Vector Autoregressive with Exogenous Variables (SVARX) Model for Mexico

Abstract

The present study analyzes the impact of temporary economic shocks on inflation in Mexico. To this end, a structural vector autoregression model with exogenous variables (SVARX) was employed for the period 2001-2024. The monthly data are employed to evaluate the impact of temporary disturbances in demand and supply on inflation dynamics in Mexico. The findings of the study indicated that, in accordance with the short-term SVAR model, inflation in Mexico is predominantly influenced by shocks originating from the components of inflation (energy, education, and food), which collectively account for approximately 35% of the variance in inflation. Concurrently, a robust inertial component is evident, with approximately 53% of the variance in inflation being attributed to this component. In the long-run SVAR model, the inertial component remains important (approximately 51%), the share of the components of inflation rises to approximately 41%, mainly because of food prices, while the aggregate of monetary and real shocks contributes only about 8% of inflation fluctuations.