Bolivia's Inflation Predicted by Money Growth and Output Gap Shifts
The study analyzed inflation in Bolivia using a time-varying Markov-switching model. They found that in high-inflation periods, money growth closely correlates with inflation, while in low-inflation periods, lagged inflation is a key factor. In the short term, negative output gaps drive high inflation, while past inflation influences low inflation. Overall, GDP growth explains inflation differences in high-inflation periods, while money and velocity growth are important in low-inflation periods.