Monetary policy rules in a small open economy: An application to Mexico
AbstractWe estimate a small-scale macro model for the Mexican economy under the New Keynesian (NK) framework and alternative interest rate rules for Mexico. With these results we evaluate the performance of the Bank of Mexico against a set of optimality principles derived in the NK literature. We show that the Bank of Mexico holds a preference for stabilizing not only inflation around target, but also acts to achieve an output gap close to zero. Furthermore, we show the central bank responds non-linearly to real exchange rate depreciations. We also show that, although the central bank has attempted to contain inflation, it has not conclusively satisfied the Taylor principle, so moderate inflation during the period may be partly a consequence of a favorable macroeconomic environment, rather than active policy.
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Bibliographic InfoPaper provided by Tecnológico de Monterrey, Campus Ciudad de México in its series EGAP Working Papers with number 2009-01.
Date of creation: Jan 2009
Date of revision:
Taylor Rule; New Keynesian; Monetary Policy; Interest Rate Rules; Small Open Economy;
Other versions of this item:
- Rodolfo Cermeño & F. Alejandro Villagómez & Javier Orellana Polo, 2012. "Monetary policy rules in a small open economy: an application to Mexico," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 259-286, November.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-CBA-2009-07-03 (Central Banking)
- NEP-MAC-2009-07-03 (Macroeconomics)
- NEP-MON-2009-07-03 (Monetary Economics)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- PolÃtica Monetaria en MÃ©xico y Reglas de Taylor
by Alejandro Villagomez in Tintero Económico Diario on 2012-11-22 00:07:00
- Banxico y la Posible ReducciÃ³n en su Tasa de Referencia
by Alejandro Villagomez in Tintero Económico Diario on 2013-03-08 02:40:00
- Entendiendo la DecisiÃ³n de Banxico
by Alejandro Villagomez in Tintero Económico Diario on 2014-02-01 00:39:00
- Banxico reduce su Tasa a 3%: Â¿Medida Correcta, Oportuna y Efectiva?
by Alejandro Villagomez in Tintero Económico Diario on 2014-06-07 14:27:00
- Villarreal, Francisco G., 2014. "Monetary Policy and Inequality in Mexico," MPRA Paper 57074, University Library of Munich, Germany.
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