 Estimating the Bank of Mexico’s reaction function in the last three decades: A Bayesian DSGE approach with rolling-windowsRene Zamarripa The North American Journal of Economics and Finance, 2021, vol. 56, issue C Abstract: This paper uses a small open economy Dynamic Stochastic General Equilibrium (DSGE) model to investigate how Mexico’s central bank has conducted its monetary policy in the period 1995–2019. The main objective of the paper is to document the systematic changes in the Bank of Mexico’s reaction function by analyzing possible shifts in the parameters of the policy rule. The central bank’s policy is modeled using a Taylor rule that relates the nominal interest rate to output, inflation, and the exchange rate. I employ Bayesian computational techniques and conduct rolling-window estimations to explicitly show the transition of the policy coefficients over the sample period. Furthermore, the paper examines the macroeconomic implications of these changes through rolling-window impulse–response functions. The results suggest that the Bank of Mexico’s response to inflation has been steady since 1995, while the response to output and the exchange rate has decreased and stabilized after 2002. Keywords: Small open economy; Monetary policy; Bayesian estimation; DSGE model (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:ecofin:v:56:y:2021:i:c:s1062940821000024 DOI: 10.1016/j.najef.2021.101362 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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