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Has monetary policy been so bad that it is better to get rid of it? The case of Mexico

  • Marco del Negro
  • Francesc Obiols-Homs

Motivated by the dollarization debate in Mexico, we estimate an identified vector autoregression for the Mexican economy using monthly data from 1976 to 1997, taking into account the changes in the monetary policy regime which occurred during this period. We find that 1) exogenous shocks to monetary policy have had no impact on output and prices, 2) most of the shocks originated in the foreign sector, 3) disturbances originating in the U.S. economy have been a more important source of fluctuations for Mexico than shocks to oil prices. We also study the endogenous response of domestic monetary policy by means of a counterfactual experiment. The results indicate that the response of monetary policy to foreign shocks played an important part in the 1994 crisis.

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Article provided by Federal Reserve Bank of Cleveland in its journal Proceedings.

Volume (Year): (2001)
Issue (Month): ()
Pages: 404-439

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Handle: RePEc:fip:fedcpr:y:2001:p:404-439
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  1. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
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  22. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
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  26. Martina Copelman & Alejandro M. Werner, 1995. "The monetary transmission mechanism in Mexico," International Finance Discussion Papers 521, Board of Governors of the Federal Reserve System (U.S.).
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