English, Article, Journal or magazine article edition: Monetary policy rules in a small open economy: An application to Mexico Villagómez, F. Alejandro; Orellana Polo, Javier

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Monetary policy rules in a small open economy: An application to Mexico
Author
  • Villagómez, F. Alejandro
  • Orellana Polo, Javier
Physical Description
  • preprint
Notes
  • We estimate a small-scale macro model for the Mexican economy under the New Keynesian (NK) framework and alternative interest rate rules for Mexico. With these results we evaluate the performance of the Bank of Mexico against a set of optimality principles derived in the NK literature. We show that the Bank of Mexico holds a preference for stabilizing not only inflation around target, but also acts to achieve an output gap close to zero. Furthermore, we show the central bank responds non-linearly to real exchange rate depreciations. We also show that, although the central bank has attempted to contain inflation, it has not conclusively satisfied the Taylor principle, so moderate inflation during the period may be partly a consequence of a favorable macroeconomic environment, rather than active policy.
  • Taylor Rule, New Keynesian, Monetary Policy, Interest Rate Rules, Small Open Economy
  • RePEc:ega:docume:200901
Language
  • English
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