Anclaje de las expectativas de inflación ante choques de oferta adversos

In order to create an environment of low and stable inflation in Mexico it has been necessary to generate a framework for the conduction of monetary policy focused on price stability along with fiscal discipline. This paper describes some structural achievements to control inflation that have been attained in Mexico. In addition, it shows empirical evidence in favor of the anchoring of inflation expectations, particularly those for the medium and long term, being recently strengthened. Considering three episodes, within the period 2004-2012, in which inflation was subject to different supply shocks, it finds that during the episode in 2012 inflation expectations showed greater stability. Results show that the response from inflation expectations to supply shocks has diminished over time, up to values that are not significantly different from zero. This suggests a strengthening of the credibility of the Bank of Mexico's commitment to price stability

Heading into trouble: A comparison of the Latin American crises and the Euro area's current crisis

We compare the experience of Latin American external debt crises, in particular the one in the 80s, with the current European one. We do so with the aim of shedding some light on the needed adjustment mechanisms. We argue for the need of much larger debt relief in Europe. To address the moral hazard problems that would arise, we propose providing such relief conditional on the reduction of both the fiscal and the current account deficits to zero as a commitment signal

Descomposición de la compensación por inflación y riesgo inflacionario en México

This document studies the recent evolution of the break-even-inflation implicit in the yields of long-term financial instruments in Mexico. In particular, it analyzes the dynamics of its main components: the long-run inflation expectation and the inflationary risk premium, which are estimated by means of an affine term structure model of interest rates. The results show that the gradual reduction registered in such compensation in the last years is the result of the decrease showed by both components. This reflects, on the one hand, the progressive convergence of the estimated inflation expectation to Banco de México's inflation target as well as its anchoring and, on the other hand, that nominal-bond holders have required a lower hedging against future inflation, possibly, as a reflection of a lower risk perception associated to it

Term premium dynamics and its determinants: The Mexican case

We estimate the term premium implicit in 10-year Mexican government bonds from 2004 to 2019, and analyze the main determinants explaining its dynamics. To do so, we decompose the longterm interest rate into its two components: the expected short-term interest rate and the term premium. The results show that the Mexican term premium increased significantly during three episodes: i) the global financial crisis; ii) the "Taper Tantrum"; and iii) the U.S. presidential election of 2016. In contrast, the term premium decreased, to historically low levels, during the U.S. "Quantitative Easing" and the "Operation Twist" programs. Additionally, we find that the main determinants that explain the dynamics of the premium are the compensation for FX risk (as a proxy of inflationary risk premium), the real compensation, and the U.S. term premium

The NAIRU and informality in the Mexican labor market

The non-accelerating inflation rate of unemployment (NAIRU) is not directly observable and the presence of informal workers imposes an additional challenge in its estimation. Countries with large informal sectors, traditional measures might not depict labor slack properly, as it has the wage flexibility needed to incorporate formal workers that cannot find a formal job. In this paper, we present an estimation of the traditional NAIRU for Mexico and an alternative measure that includes informality as an indicator of labor underutilization. We find that both measures of NAIRU and the associated labor market slack indicators follow similar patterns over time. However, the slack estimated with the indicator that includes informality seems to predict inflationary pressures more accurately when the unemployment gap is close to zero