Monetary Policy and the Propagation of Shocks Under Imperfect Exchange-Rate Pass-Through

Mariana Guerra
Additional contact information
Mariana Guerra: El Colegio de México

Sobre México. Revista de Economía, 2017, vol. 3, issue 3, 46-65

Abstract: When the Mexican Crisis of 1994 occurred, the Central Bank of Mexico was forced to abandon its fixed exchange rate system. Since then, monetary policy has been moving toward an inflation targeting regime, which finally became the operational monetary framework in 2001. Moreover, Calvo and Reinhart (2000) find evidence that the actions taken by the Mexican central bank seem to exhibit a fear of floating, which is a modern variant of managed floating. In addition, Ball and Reyes (2003) argue that the while inflation has been the number one policy issue for the Mexican central bank, at times this has required occasional intervention to offset inflationary exchange-rate shocks. However, in a low pass-through environment, the policymaker can simultaneously strictly target consumer price inflation (CPI), but still allow high volatility in the nominal exchange rate to stabilize the real economy in face of the shocks. This result emerges because the low-passthrough eliminates the trade-off between output volatility and inflation volatility. In México in the last years the elasticity of the exchange rate pass-through to general consumer prices has been very low.

JEL-codes: E31 E50 (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

Downloads: (external link)
https://sobremexico-revista.ibero.mx/index.php/Rev ... co/article/view/28/6 First version, 2017 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:smx:journl:03:3:46

Access Statistics for this article

Sobre México. Revista de Economía is currently edited by Isidro Soloaga and Alejandro Rodríguez Arana

More articles in Sobre México. Revista de Economía from Sobre México. Temas en economía
Bibliographic data for series maintained by Maria Alejandra Villegas Gutierrez ().