Is the misalignment of the Phillips curve really a COVID-19 problem? An economic analysis of the expectations of suppliers and consumers for 2021 in Mexico

Abstract

The economic sphere represented mostly by companies is the one that suffered the most from the damage caused by the COVID-19 pandemic. In this work, based on the Consumer price index (CPI) from 2010 to March 2021, a forecast is made incorporating stationarity by month, with the aim of comparing the CPI forecasts during the pandemic with the real values in the pandemic. The analysis shows that companies did not incorporate the effects of the pandemic into their forecasts, which caused changes in their finances. Perhaps consumers could have won from this price change, but unemployment conditions prevented it. According to this suspicion, the analysis involves the relationship between unemployment and inflation via the Phillips curve, and from an econometric analysis a threshold of the unemployment rate is found, where the functional form of the Phillips curve is modified. In addition to the analysis, the value of the threshold stands out, which corresponds to the unemployment rate of 4.4% in the first quarter of 2021