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How relevant is monetary policy to explain Mexican unemployment fluctuations?

Alejandro Islas-Camargo and Willy Cortez ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we analyze the effects of a monetary policy shock on Mexican unemployment rates. Unlike previous studies we re-estimate unemployment rates so that these alternative rates are comparable to those of the OECD member countries. We find that in response to tightening monetary policy, unemployment increases with a characteristic hump-shaped pattern found in other studies. Our empirical results indicate that unemployment elasticity is low and yet the velocity of adjustment to return to the initial point is rather high. We interpret these findings as being the result of two characteristics of Mexico’s labor market: (i) high labor regulation (which includes labor intervention in hiring-firing decisions), and (ii) the existence of a large informal sector and low enforcement of labor regulation.

Keywords: unemployment rates; structural VAR; monetary policy; Mexico (search for similar items in EconPapers)
JEL-codes: C32 E24 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab and nep-mon
Date: 2011-01-12
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