Mexican monetary policy in the face of the oil crisis and the CoVID-19 pandemic1895

Abstract

The CoVID-19 pandemic arrived in Mexico at a conjuncturally difficult time due to the economic cooling and the shock of oil supply, in this sense, the lockdown options adopted to mitigate the spread of the virus could have profoundly detrimental effects on the economy. For this reason, this paper aims to analyze the monetary policy decisions that Banxico has taken in the face of these external shocks, analysis made using a set of econometric models. The results show that both the pandemic and the fall in oil prices have influenced the application of expansionary but measured monetary policies, that is, on the one hand, the decrease in the interest rate due to oil shocks and, on the other hand, the containment of a rapid decrease in the interest rate, due to the CoVID-19 pandemic. It is worth mentioning that an expansionary policy would stimulate private investment, which will help in the economic recovery, however, there is still insufficient data due to the urgency of the phenomenon, which becomes the main limitation of modeling phenomena early. However, making specific follow-ups makes it possible to identify the inflection points in which one variable is no longer significant over another and thus help monetary authorities to make timely decisions.