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Monetary policy in emerging economies. Between price stabilization and economic stagnation: The case of the Mexican economy in the period 2000-2020

Author

Listed:
  • Santiago Capraro Rodriguez

    (Universidad Nacional Autonoma de Mexico)

  • Roberto Valencia

    (Universidad Nacional Autonoma de Mexico)

Abstract

This paper develops theoretical models of inflation targets that reconcile two phenomena that have characterized the Mexican economy in the period 2000-2020: this economy has presented a low and stable inflation and economic growth rate. To carry out this task, the transmission channels of monetary policy are first analyzed, particularly those of the interest rate and credit. Then, the natural growth rate of the economy is endogenized, exploiting the strong correlation that exists between this variable and the effective growth rate. The development of the models shows the conditions that must be met for a contractionary monetary policy to have a permanent negative effect on the growth rates of the economy at the same time that inflation is controlled. These conditions imply that credit has a strong response to the level of growth of the economy and that the natural growth rate depends positively on the effective growth rate.

Suggested Citation

  • Santiago Capraro Rodriguez & Roberto Valencia, 2024. "Monetary policy in emerging economies. Between price stabilization and economic stagnation: The case of the Mexican economy in the period 2000-2020," Sobre México. Revista de Economía, Sobre México. Temas en economía, vol. 1(10), pages 52-100.
    • Handle: RePEc:smx:journl:10:52:100
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    File URL: https://sobremexico-revista.ibero.mx/index.php/Revista_Sobre_Mexico/article/view/145
    File Function: First version, 2024
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O00 - Economic Development, Innovation, Technological Change, and Growth - - General - - - General
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • C00 - Mathematical and Quantitative Methods - - General - - - General

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