Inflation, Monetary Policy and Economic Growth in Mexico. An Inverse Causation, 1970-2009

Eduardo Loría, Jorge Ramírez
DOI: 10.4236/me.2011.25093                

Abstract

It is demonstrated through an Structural Vector Auto Regression (SVAR) model which distinguishes short and long term effects, that the monetary policy implemented in Mexico (1970-2008) has been successful in reducing inflation at the cost of stagnation, especially after 2002. Inflation Targeting is contradictory in itself because, while it is efficient in improving transparency and credibility of the monetary policy, it does not solve the structural causes of inflation and conversely, increases the financial costs of economic agents.

Keywords

Classical Dichotomy, Structural Vector Auto Regression Model, Monetary Policy, Inflation Targeting

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	L. Ball, “Hysteresis in Unemployment,” Johns Hopkins University, Preliminary, 2008.
[2]	O. Blanchard and D. Quah, “The Dynamic Effects of the Aggregate Demand and Supply Disturbances,” American Economic Review, Vol. 79, No. 4, 1989, pp. 655-673.
[3]	J. Taylor, “Discretion Versus Policy Rules in Practice,” Carnegie-Rochester Conference Series on Public Policy 39, North-Holland, 1993, pp. 195-214.
[4]	F. Kydland and E. Prescott, “Rules Rather than Discretion: The Inconsistence of Optimal Plans,” Journal of Political Economy, Vol. 85, No.3, 1977, pp. 473-492.
[5]	R. Barro and D. Gordon, “Rules, Discretion and Reputation in a Model of Monetary Policy,” Journal of Monetary Economics, Vol. 12, 1983, pp. 101-121.
[6]	A. Cukierman, “Central Bank Strategy, Credibility and Independence: Theory and Evidence,” MIT Press, Cambridge, 1993.
[7]	H. Johnson, “Revolution and Counter-Revolution in Economics from Lord Keynes to Milton Friedman,” Encounter, Vol. XL, No. 10, 1971, pp. 1883-1946.
[8]	M. Ramos-Francia and A. Torres, “Inflation Dynamics in Mexico: A Characterization Using the New Phillips Curve,” The North American Journal of Economics and Finance, Vol. 19, No. 3, 2006, pp. 274-289.
[9]	J. Stiglitz, “The Failure of Inflation Targeting. Project Syndicate,” Columbia University, 2008. www.project-syndicate.org
[10]	F. S. Mishkin, “Inflation Targeting in Emerging Market Countries,” American Economic Review, Vol. 90, No. 2, 2000, pp. 105-109. doi:10.1257/aer.90.2.105
[11]	B. Bernanke and F. S. Mishkin, “Inflation Targeting: A New Framework for Monetary Policy?” Journal of Economic Perspectives, Vol. 11, No. 2, 1997, pp. 97-116. doi:10.1257/jep.11.2.97
[12]	S. Kurczyn, “Transparencia de la Política Monetaria y Democracia en México,” In: F. Chávez,, Ed., Moneda y régimen cambiario en México, UAM-Azcapotzalco, 2003.
[13]	M. Schwartz, “Consideraciones sobre la instrumen- tación práctica de la política monetaria. Banco de Mexico,” Banco de México, Working Paper: 9804, 1998,.
[14]	S. Castellanos, “El efecto del corto sobre la estructura de tasas de interés,” Banco de México, Working Paper: 2000-01, 2000,.
[15]	A. Díaz de León and L. Greenham, “Política Monetaria y Tasas de Interés: Experiencia Reciente para el Caso de México,” Banco de México, Working Paper: 2000-08, 2000.
[16]	L. Martínez; O. Sánchez and A. Werner, “Considera- ciones Sobre la Conducción de la Política Monetaria y el Mecanismo de Transmisión en México,” Banco de Mexico, Working Paper: 2001-02, 2001.
[17]	F. S. Mishkin, “Does Stabilizing Inflation Contribute to Sta- bilizing Economic Activity?” National Bureau of Economic Research, Working Paper: 13970, 2008.
[18]	A. Carstensand and A. Werner, “.Mexico’s Monetary Policy Framework under a Floating Exchange Rate Regime,” Banco de México, Working Paper: 1999-05, 1999.
[19]	E. Elizondo, “Aspectos Diversos del Régimen Cambiario de México, 1994-2002,” In: F. Chávez, Ed., Moneda y régimen cambiario en México, UAM-Azcapotzalco, 2003.
[20]	F. Rubli, “En Búsqueda del Régimen Monetario más Eficiente,” In: F. Chávez, Ed., Moneda y Régimen Cam- biario en México, UAM-Azcapotzalco, 2003.
[21]	L. M. Galindo and J. Ros, “Alternatives to Inflation Targeting in Mexico,” International Review of Applied Economics, Vol. 22, No. 2, 2008, pp. 201-214.
[22]	H. Contreras and O. Amador, “México: El Proceso Inflacionario 2008. Una revisión del primer cuatrimestre,” Economía Informa, Vol. 142, No. 352, 2008, pp. 127-146.
[23]	J. Perloff, “Microeconomics,” Addison-Wesley, Reading, 1999.
[24]	W. Carlin and D. Soskice, “Macroeconomics Imperfections, Institutions and Policies,” Oxford University Press, Oxford, 2006.
[25]	B. Bernanke, “Alternative Explanations of Money— Income Correlation,” NBER Working Paper No. 1842, Vol. 18, No. 1, 1986, pp. 50-70.
[26]	C. Sims, “Are Forecasting Models Usable for Policy Analysis?” Quarterly Review of the Federal Reserve Bank of Minneapolis, No. Winter, 1986, pp. 1-16.
[27]	J. H. Stock and M. W. Watson, “Vector Autoregression,” Journal of Economic Perspectives, Vol. 15, 2001, pp. 101- 115.
[28]	W. Enders, “Applied Econometric Time Series,” 2nd Edition, Wiley & Sons Inc, New York, 2004.
[29]	C. Sims, “Macroeconomics and Reality,” Econometrica, Vol. 48, No. 1, 1980, pp. 1-48.
[30]	J. Galí, “Monetary Policy, Inflation, and the Business Cycle. An Introduction to the New Keynesian Framework,” Princeton University Press, Princeton, 2008.
[31]	R. Valdés, “Transmisión de la Política Monetaria en Chile,” Central Bank of Chile Working Paper: 16, 1997.
[32]	I. Gulli, “Ley de Okun descomposición de las fluctuaciones económicas,” Documento de trabajo, Asociación Ar- gentina de Economía Política, 2005. www.aaep.org.ar/espa/ anales/works05/gulli.pdf
[33]	G. A. Calderón and J. J. Méndez, “Relación del Ciclo de Crecimiento de los Estados Unidos de América con el Ciclo de Crecimiento Económico de Guatemala,” Notas monetarias Banco de Guatemala, 2009. http://www.banguat.gob.gt/inveco/notas/articulos/envolver.asp?karchivo=3201&kdisc=si
[34]	O. Blanchard and M. Watson, “Are Business Cycles All Alike?” National Bureau of Economic Research (NBER), Working Paper: 1392, 1984.
[35]	Banco de Mexico, “Informes anuales de política monetaria,” (several years). http://www.banxico.org.mx
[36]	INEGI, “Sistema de Cuentas Nacionales de México,” (several years). http://200.23.8.5/est/contenidos/espanol/proyectos/metadatos/derivada/scnmsa_41.asp?c=4610