The effects of inflation on the predictability of price changes in Latin America: Some estimates and policy implications

This paper argues that the relationship between price variability and inflation in high-inflation countries should be estimated on a frequent basis and that rational expectations are the appropriate formulation for predicting inflation. Analysis of seven Latin American countries, taking these factors into account, suggests that higher inflation contributes to the difficulty of predicting price changes. The impact is more moderate than that found in previous studies, however, indicating that less concern may be warranted about the possible stagflationary effects of expansionary policies.