NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Capital Mobility and the Scope for Sterilization: Mexico in the 1970s

Robert E. Cumby, Maurice Obstfeld

NBER Working Paper No. 770 (Also Reprint No. r0462)
Issued in March 1984
NBER Program(s):   ITI   IFM

This paper is an empirical study of the Banco de Mexico's monetary policy during the 1970s. In particular, it studies the Mexican monetary equilibria and the extent to which capital mobility undermined monetary control. Estimates of a Banco de Mexico reaction function suggest that the Mexican central bank attempted to sterilize reserve flows through offsetting movements in domestic credit, at least over the second half of the decade. This finding suggests that estimates of the capital-account response to domestic credit expansion should be derived from a structural model, and we accordingly estimate an aggregative three-equation model of Mexican financial markets. The paper distinguishes between the short-run or one-quarter capital-account offset and a hypothetical long-run offset that would obtain under instantaneous asset-market adjustment. The model implies that, depending on the method of monetary expansion, between 30 and 50 percent of an expansion in domestic credit was offset by capital outflow in the same quarter. The implied long-run offsets range from 50 to 76 percent. These offset coefficients indicate that the Banco de Mexico's monetary control was exercised at a substantial cost in terms of reserve volatility.

download in pdf format
   (446 K)

email paper

This paper is available as PDF (446 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published:

Users who downloaded this paper also downloaded these:
Obstfeld w0833 Can We Sterilize? Theory and Evidence
Aizenman and Glick w13902 Sterilization, Monetary Policy, and Global Financial Integration
Cumby and Obstfeld Capital Mobility and the Scope for Sterilization: Mexico in the 1970s
Obstfeld w0963 Exchange Rates, Inflation and the Sterilization Problem: Germany, 1975-1981
Caballero and Krishnamurthy w8141 International Liquidity Illusion: On the Risks of Sterilization
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us