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How relevant is monetary policy to explain Mexican unemployment fluctuations?

  • Islas-Camargo, Alejandro
  • Cortez, Willy W.

In this paper we analyze the effects of a monetary policy shock on Mexican unemployment rates. Unlike previous studies we re-estimate unemployment rates so that these alternative rates are comparable to those of the OECD member countries. We find that in response to tightening monetary policy, unemployment increases with a characteristic hump-shaped pattern found in other studies. Our empirical results indicate that unemployment elasticity is low and yet the velocity of adjustment to return to the initial point is rather high. We interpret these findings as being the result of two characteristics of Mexico’s labor market: (i) high labor regulation (which includes labor intervention in hiring-firing decisions), and (ii) the existence of a large informal sector and low enforcement of labor regulation.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30027.

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Date of creation: 12 Jan 2011
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Handle: RePEc:pra:mprapa:30027
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  1. Alexius, Annika & Holmlund, Bertil, 2007. "Monetary Policy and Swedish Unemployment Fluctuations," Working Paper Series 2007:17, Uppsala University, Department of Economics.
  2. Marc Hayford, 2005. "Fiscal policy and national saving," Applied Economics, Taylor & Francis Journals, vol. 37(9), pages 981-992.
  3. Richard H. Clarida, 2005. "Japan, China, and the U.S. Current Account Deficit," Cato Journal, Cato Journal, Cato Institute, vol. 25(1), Winter.
  4. Ravn, Morten O & Simonelli, Saverio, 2007. "Labour Market Dynamics and the Business Cycle: Structural Evidence for the United States," CEPR Discussion Papers 6409, C.E.P.R. Discussion Papers.
  5. Alfonso Mendoza V., 2003. "The Inflation-Output Volatility Tradeoff and Exchange Rate Shocks in Mexico and Turkey," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 27-51.
  6. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
  7. Victoria Chick, 1983. "Macroeconomics after Keynes: A Reconsideration of the General Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262530457, June.
  8. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
  9. Jeronimo Pastor & Alejandro Villagomez, 2007. "The structural budget balance: a preliminary estimation for Mexico," Applied Economics, Taylor & Francis Journals, vol. 39(12), pages 1599-1607.
  10. Grier, Robin & Grier, Kevin B., 2006. "On the real effects of inflation and inflation uncertainty in Mexico," Journal of Development Economics, Elsevier, vol. 80(2), pages 478-500, August.
  11. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, August.
  12. Revenga, Ana & Riboud, Michelle & DEC, 1993. "Unemployment in Mexico : its characteristics and determinants," Policy Research Working Paper Series 1230, The World Bank.
  13. Alcaraz Carlo, 2009. "Informal and Formal Labour Flexibility in Mexico," REVISTA DESARROLLO Y SOCIEDAD, UNIVERSIDAD DE LOS ANDES-CEDE, September.
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