1 Inflation Expectations , Country Risk , and Monetary Policy in Mexico
نویسندگان
چکیده
This paper analyzes the transmission mechanism of monetary policy in an emerging market economy like Mexico. The analysis emphasizes the importance of economic agents’ expectations – mainly inflation expectations and country-risk perception – to understand the effects of monetary policy in emerging market economies. It is shown that both, economic agents’ expectations and the correct identification of the stance of monetary policy, are crucial to understand the “price puzzle” in a small open economy. The relevance of inflation expectations and country-risk perception in solving the “price puzzle” in Mexico suggests that the Central Bank must not only monitor expectations, but also through its actions, influence their behavior. Favorable expectations on the economic environment would result in a more pronounced abatement of inflation. JEL Classification: E5, E4. 1 Paper prepared for the Seminar Stabilization and Monetary Policy: The International Experience, organized by Banco de México to celebrate its 75 anniversary. The authors wish to thank Armando Baqueiro, Alejandro Díaz de León, Oscar Sánchez, Alejandro Werner and participants at the Banco de México’s Economic Research seminar for helpful comments and suggestions, as well as Francisco Rodríguez for research assistance. Opinions expressed in the article belong solely to the authors and do not necessarily represent those of Banco de México. Correspondence: [email protected]
منابع مشابه
Measuring inflation expectations and the effect of monetary policy Euro area inflation compensation and ECB policy announcements
This thesis looks at ways of measuring the inflation expectations of economic agents, by constructing a market-based measure from the inflation compensation of government bonds. Inflation compensation is defined as the difference in yields between nominal and index-linked government bonds leaving investors indifferent between holding the two. Inflation compensation is a true measure of expectat...
متن کاملInflation Scares and Forecast-Based Monetary Policy
Central banks pay close attention to inflation expectations. In standard models, however, inflation expectations are tied down by the assumption of rational expectations and should be of little independent interest to policy makers. In this paper, we relax the assumption of rational expectations with perfect knowledge and reexamine the role of inflation expectations in the economy and in the co...
متن کاملDeepak Mohanty: The importance of inflation expectations
I thank Dr. Sesha Iyer and Dr. Pattnaik for the invitation to address this young audience. In monetary analysis and policy, inflation expectations play a pivotal role. Recently, in many advanced economies, central banks have substantially expanded their balance sheets, which is apparently inflationary. However, central banks in these countries allay the inflation concerns by indicating that, de...
متن کاملThe Effect of Central Bank’s Monetary Policy on Unemployment and Inflation in Provinces of Iran: A GVAR Approach
The national economy of most countries is made up of various regions (provinces) with different industrial composition, financial structure, trade relations, and institutional environment. Depending on these characteristics, regions may respond differently to a uniform national macroeconomic policy. Policymakers should consider these heterogeneities to achieve the national development objective...
متن کاملRobust Discretionary Monetary Policy under Cost-Push Shock Uncertainty of Iran’s Economy
T here is always uncertainty about the soundness of an economic model’s structure and parameters. Therefore, central banks normally face with uncertainty about the key economic explanatory relationships. So, policymaker should take into account the uncertainty in formulating monetary policies. The present study is aimed to examine robust optimal monetary policy under uncertainty, by ...
متن کامل