The Monetary and Fiscal History of Mexico: 1960-2017

40 Pages Posted: 24 Aug 2018 Last revised: 2 Mar 2019

See all articles by Felipe Meza

Felipe Meza

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Análisis e Investigación Económica

Date Written: August 9, 2018

Abstract

The objective of this paper is to analyze the monetary and fiscal history of Mexico using a model of the consolidated budget constraint of the Mexican government as the framework. I assume a small open economy in which the government exports oil. I study the period 1960-2016. I evaluate the ability of the model to explain the crises of 1982 and 1994, and while the model can explain the 1982 debt crisis, it cannot explain the 1994 crisis. A constitutional change in the relationship between the federal government and Banco de México, and policy choices made in the aftermath of the 1994 crisis, are consistent with a transition from fiscal dominance to an independent Central Bank. Inflation fell persistently after 1995, reaching values of 3% per year in mid-2016. That number is the target of the Central Bank. After a long transition following the 1982 crisis, Mexico succeeded in controlling inflation. I discuss forces that reduced inflation over time: a long sequence of primary surpluses, the constitutional change that gave independence and a goal to the Central Bank, and the current inflation targeting regime. On the fiscal side, I observe a change in the downward trend of the total debt-to-GDP ratio, as it fell from the 1980s to 2009, the year in which it started growing persistently until 2016.

Suggested Citation

Meza, Felipe, The Monetary and Fiscal History of Mexico: 1960-2017 (August 9, 2018). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-64, Available at SSRN: https://ssrn.com/abstract=3238181 or http://dx.doi.org/10.2139/ssrn.3238181

Felipe Meza (Contact Author)

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Análisis e Investigación Económica ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10700
Mexico

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