Western Hemisphere > Mexico

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Man-Keung Tang and Mr. Xiangrong Yu
This paper studies the role of central bank communication of its economic assessment in shaping inflation dynamics. Imperfect information about the central bank's assessment - or the basis for monetary policy decisions - could complicate the private sector's learning about its policy response function. We show how clear central bank communication, which facilitates agents' understanding of policy reasoning, could bring about less volatile inflation and interest rate dynamics, and afford the authorities with greater policy flexibility. We then estimate a simple monetary model to fit the Mexican economy, and use the suggested paramters to illustrate the model's quantitative implications in scenarios where the timing, nature and persistence of shocks are uncertain.
Ms. Prachi Mishra
This paper empirically examines the effect on wages in Mexico of Mexican emigration to the United States, using data from the Mexican and United States censuses from 1970-2000. The main result in the paper is that emigration has a strong and positive effect on Mexican wages. There is also evidence for increasing wage inequality in Mexico due to emigration. Simple welfare calculations based on a labor demand-supply framework suggest that the aggregate welfare loss to Mexico due to emigration is small. However, there is a significant distributional impact between labor and other factors.
Mr. Barry J. Eichengreen and Mr. Tamim Bayoumi
This paper considers the extent to which the North American Free Trade Area (NAFTA) meets the criteria for a common currency area. NAFTA is compared with the EC, a regional grouping for which initial plans for a monetary union are already in place. Most of the anticipated benefits from a monetary union in the EC apply with equal force to NAFTA. However, because the underlying disturbances are more diverse across members of NAFTA, the costs of abandoning the exchange rate instrument are likely to be higher. This is particularly true when NAFTA is compared to the EC’s continental core.