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Shifting Nominal Anchors: The Experience of Mexico

  • Leonardo Leiderman

    (Professor of Economies, University of Tel Aviv. Tel Aviv, Israel.)

  • Nissan Liviatan

    (Professor of Economies, Hebrew University. Jerusalem, Israel.)

  • Alfredo Thorne

    (Vice President, J. P. Morgan. New York, NY. USA.)

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    In the mid-1980’s Mexico successfully brought down its high rate of inflation by using the exchange rate as nominal anchor in combination with strict fiscal discipline, tight monetary policy, and incomes policy. This paper discusses the role of exchange rate policy as nominal anchor in Mexico and develops the inflation target as the monetary framework for anchoring prices. It also describes how Mexico is applying this frame work while shifting to a more flexible exchange regime and discusses the role of the newly independent central bank and monetary policy in keeping inflation under control while shifting nominal anchors. This paper describes the situations as seen in early 1994, and makes no attempt to describe the events that led to the 1994 crisis and its aftermath.

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    File URL: http://www.economiamexicana.cide.edu/num_anteriores/IV-2/01_LEIDERMAN_197-237.pdf
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    Article provided by in its journal Economia Mexicana NUEVA EPOCA.

    Volume (Year): IV (1995)
    Issue (Month): 2 (July-December)
    Pages: 197-237

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    Handle: RePEc:emc:ecomex:v:4:y:1995:i:2:p:197-237
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    1. Ben Bernanke & Frederic Mishkin, 1992. "Central Bank Behavior and the Strategy of Monetary Policy: Observations from Six Industrialized Countries," NBER Chapters, in: NBER Macroeconomics Annual 1992, Volume 7, pages 183-238 National Bureau of Economic Research, Inc.
    2. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
    3. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
    4. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-31, August.
    5. Bertola, Giuseppe & Caballero, Ricardo J, 1992. "Target Zones and Realignments," American Economic Review, American Economic Association, vol. 82(3), pages 520-36, June.
    6. Michele Lloyd, 1992. "The New Zealand approach to central bank autonomy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 55, Septemebe.
    7. Lawrence H. Summers, 1991. "Panel discussion: price stability ; How should long-term monetary policy be determined?," Proceedings, Federal Reserve Bank of Cleveland, pages 625-631.
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