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February 14, 2026Open Access

The Influence of U.S. Monetary Policy Uncertainty and Inflation Expectations on the Economy of Puerto Rico: Insights from a VAR Model

Puntos clave

The study aims to explore how U.S. monetary policy uncertainty and inflation expectations affect Puerto Rico’s economy.
Utilized a VAR model based on the methodology of Toda and Yamamoto (1995).
Analyzed data from 1985 to 2024.
Examined the relationship between inflation rates, unemployment, and monetary policy.
Found bi-directional Granger causality between Puerto Rico’s macroeconomic indicators and U.S. inflation expectations.
No significant causality was found with monetary policy uncertainty.
U.S. inflation expectations significantly influenced Puerto Rico’s inflation and unemployment rates.

Resumen

This paper investigates the relationship between Puerto Rico’s Headline CPI Inflation Rate, Unemployment Rate, U.S. monetary policy uncertainty, and inflation expectations using a VAR model based on the methodology of Toda and Yamamoto (1995), covering the period 1985–2024. Results reveal bi-directional Granger causality between Puerto Rico’s macroeconomic indicators and U.S. inflation expectations, but not with monetary policy uncertainty. Impulse responses and variance decompositions highlight the significant influence of U.S. inflation expectations on Puerto Rico’s inflation and unemployment. The findings underscore the island’s macroeconomic sensitivity to U.S. expectations.

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Cite This Study

Héctor Romero-Ramírez (Fri,) studied this question.

synapsesocial.com/papers/699011b32ccff479cfe58a3d https://doi.org/https://doi.org/10.5281/zenodo.18620876

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