Capital mobility and the scope for sterilization: Mexico in the 1970s
This paper is an empirical study of the Banco de Mexico's monetary policy during the 1970s. In particular, it studies the Mexican monetary equilibria and the extent to which capital mobility undermined monetary control. Estimates of a Banco de Mexico reaction function suggest that the Mexican central bank attempted to sterilize reserve flows through offsetting movements in domestic credit, at least over the second half of the decade. This finding suggests that estimates of the capital-account response to domestic credit expansion should be derived from a structural model, and we accordingly estimate an aggregative three-equation model of Mexican financial markets. The paper distinguishes between the short-run or one-quarter capital-account offset and a hypothetical long-run offset that would obtain under instantaneous asset-market adjustment. The model implies that, depending on the method of monetary expansion, between 30 and 50 percent of an expansion in domestic credit was offset by capital outflow in the same quarter. The implied long-run offsets range from 50 to 76 percent. These offset coefficients indicate that the Banco de Mexico's monetary control was exercised at a substantial cost in terms of reserve volatility.
(This abstract was borrowed from another version of this item.)
|Date of creation:||1981|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frenkel, Jacob A & Glyfason, Thorvaldur & Helliwell, John F, 1980. "A Synthesis of Monetary and Keynesian Approaches to Short-Run Balance-of-Payments Theory," Economic Journal, Royal Economic Society, vol. 90(359), pages 582-92, September.
- Kouri, Pentti J K & Porter, Michael G, 1974. "International Capital Flows and Portfolio Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 82(3), pages 443-67, May/June.
- Murray, Gordon L, 1978. "Monetary Policy and Capital Inflow," The Economic Record, The Economic Society of Australia, vol. 54(146), pages 271-80, August.
- Eliana A. Cardoso & Rudiger Dornbusch, 1980. "Three Papers on Brazilian Trade and Payments," NBER Working Papers 0541, National Bureau of Economic Research, Inc.
- Miller, Norman C & Askin, Sherry S, 1976. "Monetary Policy and the Balance of Payments in Brazil and Chile," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(2), pages 227-38, May.
- Maurice Obstfeld & Robert E. Cumby & John Huizinga, 1983.
"Two-Step Two-Stage Least Squares Estimation in Models with Rational Expectations,"
NBER Technical Working Papers
0011, National Bureau of Economic Research, Inc.
- Cumby, Robert E. & Huizinga, John & Obstfeld, Maurice, 1983. "Two-step two-stage least squares estimation in models with rational expectations," Journal of Econometrics, Elsevier, vol. 21(3), pages 333-355, April.
- Porzecanski, Arturo C, 1979. "Patterns of Monetary Policy in Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 427-37, November.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:187. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)
If references are entirely missing, you can add them using this form.