Luis Miguel Galindo

Alternatives to inflation targeting in Mexico

The paper addresses Mexico’s experience with inflation targeting, which became operational in the aftermath of the 1994/95 tequila crisis. Using VAR econometrics over the post‐1980 time series data, we find that monetary policy of the Banco de México was asymmetric with respect to exchange rate movements – tightening when exchange rates depreciated, but not loosening when exchange rates appreciated. This lent a bias in favor of an over‐valued exchange rate, leading to contractionary effects on output. We propose a more ‘neutral’ monetary policy so that the central bank of Mexico responds symmetrically to real exchange rate movements and thereby avoids the bias toward over‐valuation. This policy may continue to be implemented within the boundaries of inflation targeting wherein the central bank would promote a ‘stable and competitive’ real exchange rate by establishing a sliding floor to the exchange rate in order to prevent excessive appreciation, but by allowing it to float freely otherwise.

Forces Driving Pollutant Emissions in the MCMA

Fifty years ago, the Mexico City Metropolitan Area (MCMA) had fewer than three million inhabitants. In the year 2000, the population was six times larger, with over 18 million people. In terms of population, the MCMA is the second largest city in the world, exceeded only by the metropolitan area of Tokyo with 26 million inhabitants (World Bank, 2001). As the nation’s capital, Mexico City is home to the national political institutions, the greatest concentration of economic investments, and most of the country’s industrial and financial infrastructure.

Applied Econometrics Methods and Monetary Policy: Empirical Evidence from the Mexican Case

The main objective of this paper is to illustrate, using Mexican data, how the results yield by modern econometric methods are dependent upon each specific technique as well as upon the statistical properties of the series analyzed. The problems are even stronger and more evident in the case of economic series with structural changes and high variability as is the case of Mexico. Applied econometrics should be explicitly based upon a probability viewpoint, and different methods should be taken to produce only approximations to the actual data generation process. Thus, alternative techniques can only show distinctive features of the actual data that still need to be validated with the rest of empirical evidence. This indicates that applied econometricians have to look for maximum information by correctly applying different techniques without forgetting the relevance of economic reasoning. Using Mexican data, alternative econometric estimations are evaluated indicating that the formulation of a monetary policy only on the basis of some specific technique, without considering its potential pitfalls, should not be recommended.