TY  - JOUR
AU  - Cumby,Robert E.
AU  - Obstfeld,Maurice
TI  - Capital Mobility and the Scope for Sterilization: Mexico in the 1970s
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 770
PY  - 1984
Y2  - March 1984
UR  - http://www.nber.org/papers/w0770
L1  - http://www.nber.org/papers/w0770.pdf
N1  - Author contact info:
Robert E. Cumby
Georgetown University
School of Foreign Service
Washington, DC 20057-1045
Tel: 202/687-2990
Fax: 202/687-6102
E-Mail: cumbyr@georgetown.edu

Maurice Obstfeld
Department of Economics
University of California, Berkeley
530 Evans Hall #3880
Berkeley, CA 94720-3880
Tel: 510/643-9646
Fax: 510/642-6615
E-Mail: obstfeld@econ.berkeley.edu
M1  - published as Robert E. Cumby, Maurice Obstfeld. "Capital Mobility and the Scope for Sterilization: Mexico in the 1970s," in Pedro Aspe Armella, Rudiger Dornbusch, and Maurice Obstfeld, eds., "Financial Policies and the World Capital Market: The Problem of Latin American Countries" University of Chicago Press (1983)

AB  - 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.
ER  -