Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy
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.
Bayesian estimation, Fear of floating, Inflation targeting, Monetary rules, Small open economy models
Best, Gabriela. "Fear of floating or monetary policy as usual? A structural analysis of Mexico's monetary policy." The North American Journal of Economics and Finance 24 (2013): 45-62.
North American Journal of Economics and Finance