Determinants of Inflation in Argentina, 2004-2022

Abstract

This paper analyzes the empirical relationship between the inflation rate and its proximate determinants in Argentina, using quarterly data during the period 2004-2022 and a vector error correction modeling approach. Unlike previous literature, this article is based on a theoretical scheme that motivates the inclusion of variables that are expected to contribute to explaining inflation, which allows reducing the risk of omitting relevant variables and formalizing key mechanisms. Inference is performed through Granger causality analysis, impulse response functions and analysis of variance of forecast errors. The results suggest that an anti-inflationary plan for Argentina should take into consideration both the greater relevance of the inertial components, the exchange rate and the interest rate in the short-term dynamics of the price level, as well as the long-term relationship between prices, interest rate and level of activity.

Date of presentation: 07-14-2023

Date of approval: 12-11-2023

JEL classification: E31; C22; E52