Output-inflation Trade-offs: The Latin AmericanExperience

This paper investigates the natural rate hypothesis, using the Lucas and Hanson approaches for ten Latin American countries. The pl, lIpose of using two methods to test this hypothesis is to ascertain the robustness of the results to the underlying differences in the assumptions of these methods. The evidence strongly supports the natural rate hypothesis and the predictions of the Lucas model. The results of the Hanson method are in general consistent with the natural rate hypothesis, but they are not as conclusive as the results of the Lucas method. The evidence from the Hanson model suggests that the monetary growth predicted by past inflation performs better than the one predicted by past monetary growth.