Inflation uncertainty, monetary shocks and economic growth: evidence from Brazil, Chile, Columbia, Mexico and Peru

This paper investigates the relationship between inflation uncertainty, the conduct of monetary policy, and the level of economic growth in Brazil, Chile, Colombia, Mexico and Peru. This is accomplished by analyzing regression and nonregression evidence. The regression evidence is drawn from an earlier study by Sebatian Edwards (1983). A replication and reexamination of the tests conducted by Edwards reflect an overall negative relationship between unexpected monetary policy and economic growth for the period between 1963 and 1993. In addition to regression evidence, non-regression evidence confirms the econometric results. The evidence presented in this paper demonstrates that inconsistent macroeconomic policies, such as sizable and chronic budget deficits result in sustained and variable inflation as well as lower economic growth in the long-run.