It takes two: Fiscal and monetary policy in Mexico
Carlos Cantú and
Claudia Ramirez Bulos
No 1012, BIS Working Papers from Bank for International Settlements
We model the interaction between fiscal and monetary policy and qualify their effects in a semi-structural small open economy model calibrated for Mexico. In our model, fiscal and monetary policy follow rules tied to specific targets. We estimate how fiscal policy, through deficits and public debt accumulation, and monetary policy, through the interest rate, directly affect the economy. We study the nature of the feedback between policy decisions and examine their indirect effects through the sovereign risk channel. We find that the response of monetary policy to stabilise the economy after a shock depends on how strict is the fiscal rule. A loose fiscal stance pushes a tighter monetary policy stance. Instead, the economy recovers faster when monetary and fiscal policy complement each other.
Keywords: monetary policy; fiscal policy; sovereign risk premium; policy rules (search for similar items in EconPapers)
JEL-codes: E52 E58 H5 H63 (search for similar items in EconPapers)
Pages: 33 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dem, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.bis.org/publ/work1012.pdf Full PDF document (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1012
Access Statistics for this paper
More papers in BIS Working Papers from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Christian Beslmeisl ().