Comparison of inflation-unemployment in the United States and Mexico at the beginning of the COVID-19 pandemic

Abstract

As of the first quarter of 2020, economies around the world began a slowdown in their activity due to the confinement generated by the COVID-19 pandemic. In several economies, expansionary monetary and fiscal policies were implemented to try to avoid a drastic drop in unemployment and production. The objective of the work is to analyze the relationship between the levels of inflation and unemployment at the beginning of the pandemic, both in Mexico and in the United States of America, and to assess whether there is a difference in said relationship between both countries. Monthly inflation and unemployment data were used from January 2016 to December 2020, considering a Generalized Additive Model (MAG) to study the relationship between inflation and unemployment in both countries. The expected results would suggest the evident existence of the Phillips curve in the short term in the United States, but not in Mexico, so it would not justify an expansive fiscal policy in the latter to stimulate the economy. It is concluded that orthodox economic policies to stimulate the economy and reduce unemployment would not necessarily have the expected effects in the case of Mexico but would have an increase in prices.