 Global supply chain inflationary pressures and monetary policy in MexicoJuan Hernandez, Daniel Ventosa-Santaulària and J. Eduardo Valencia Emerging Markets Review, 2024, vol. 58, issue C Abstract: In this paper, we examine the impact of stress in the global supply chains on inflation and monetary policy in Mexico, a representative emerging market economy. Using non-linear local projections, we estimate the degree of monetary policy tightening required in a high-stress supply chain environment and compare it to that in a low-stress environment. We instrument the monetary policy shocks with shocks to the federal funds rate. Results suggest that in a high-stress regime, the effect of an increase in the monetary policy interest rate on inflation over a one-year period is reduced considerably. We argue that this reduction is due to the slow response of inflation expectations to a monetary policy tightening in a high-stress regime. Furthermore, raising the interest rate has an effect on producer price inflation, a channel that is absent in a low-stress regime. This finding highlights the role of monetary policy in stabilizing inflation when facing supply shocks that are not necessarily permanent. Keywords: Inflation; Monetary policy; Emerging market economies; Mexico; Non-linear local projections (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:58:y:2024:i:c:s1566014123000948 DOI: 10.1016/j.ememar.2023.101089 Access Statistics for this article Emerging Markets Review is currently edited by Jonathan A. Batten More articles in Emerging Markets Review from Elsevier |
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