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Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy

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  • Best, Gabriela

Abstract

This paper uses Bayesian methods to estimate a small open economy dynamic stochastic general equilibrium (DSGE) model for the period in Mexico after the 1994 crisis. I consider a Taylor rule as the expression of the evolution of monetary policy to gauge its response to the exchange rate in the post-crisis period. The estimation results favor a consistent response of the nominal interest rate to the short-run nominal exchange rate after 1994. Although fear of floating is present, Mexico's monetary policy has taken steps toward a credible free-floating exchange rate that targets inflation.

Suggested Citation

  • Best, Gabriela, 2013. "Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 45-62.
    • Handle: RePEc:eee:ecofin:v:24:y:2013:i:c:p:45-62
    DOI: 10.1016/j.najef.2012.05.002
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    References listed on IDEAS

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    Cited by:

    1. Hummaira Jabeen, 2022. "Monetary Policy Shock Transmission in Emerging Markets," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(4), pages 379-390, December.
    2. Zamarripa, Rene, 2021. "Estimating the Bank of Mexico’s reaction function in the last three decades: A Bayesian DSGE approach with rolling-windows," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).
    3. Byoung Hark Yoo, 2008. "Interest Arbitrage and Interest Rates in Korea," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 14(3), pages 133-155, September.
    4. Gabriela Cugat, 2019. "Emerging markets, household heterogeneity, and exchange rate policy," 2019 Meeting Papers 526, Society for Economic Dynamics.
    5. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    6. Villarreal, Francisco G., 2014. "Monetary Policy and Inequality in Mexico," MPRA Paper 57074, University Library of Munich, Germany.
    7. Montes, Gabriel Caldas & Ferreira, Caio Ferrari, 2020. "Does monetary policy credibility mitigate the fear of floating?," Economic Modelling, Elsevier, vol. 84(C), pages 76-87.
    8. Cheng Chak Hung Jack, 2013. "Exchange rate pass-through and fiscal multipliers," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-33, September.
    9. Francisco G. Villarreal, 2022. "Monetary Policy and Inequality under Household Heterogeneity and Incomplete Markets," Revista Economía, Fondo Editorial - Pontificia Universidad Católica del Perú, vol. 45(90), pages 74-110.
    10. Yildirim, Zekeriya, 2022. "Global financial risk, the risk-taking channel, and monetary policy in emerging markets," Economic Modelling, Elsevier, vol. 116(C).
    11. Gabriel Caldas Montes & Caio Ferrari Ferreira, 2019. "Does monetary policy credibility mitigate the effects of uncertainty about exchange rate on uncertainties about both inflation and interest rate?," International Economics and Economic Policy, Springer, vol. 16(4), pages 649-678, October.

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    More about this item

    Keywords

    Small open economy models; Monetary rules; Inflation targeting; Fear of floating; Bayesian estimation;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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