Shifting Nominal Anchors: The Experience of Mexico
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.
Volume (Year): IV (1995)
Issue (Month): 2 (July-December)
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