Title

Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy

Abstract

This paper uses Bayesian methods to estimate a small open economy dynamic stochastic general equilibrium (DSGE) model for the period in Mexico after the 1994 crisis. I consider a Taylor rule as the expression of the evolution of monetary policy to gauge its response to the exchange rate in the post-crisis period. The estimation results favor a consistent response of the nominal interest rate to the short-run nominal exchange rate after 1994. Although fear of floating is present, Mexico's monetary policy has taken steps toward a credible free-floating exchange rate that targets inflation.

Department(s)

Economics

Document Type

Article

DOI

https://doi.org/10.1016/j.najef.2012.05.002

Keywords

Bayesian estimation, Fear of floating, Inflation targeting, Monetary rules, Small open economy models

Publication Date

1-1-2013

Journal Title

North American Journal of Economics and Finance

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