As a consequence of the international environment, the currencies of many emerging market economies have experienced important depreciations in a context of high volatility in financial markets. The Mexican peso has not been the exception to the above situation. In this setting, the exchange rate pass-through into consumer prices deserves special attention as it allows us to evaluate the anchoring of inflation expectations in the Mexican economy. To address this issue, in this paper we use non-public micro data from the Mexican Consumer Price Index (CPI) to analyze the relation between exchange rate and price-setting in Mexico for the period between January 2011 and April 2016. Our estimates suggest that the exchange rate pass-through into consumer prices is low.

Resumen: Para crear un entorno de inflación baja y estable en México ha sido necesario generar un marco para la conducción de la política monetaria enfocado en la estabilidad de precios, junto con disciplina fiscal. Este trabajo describe algunos logros estructurales que se han alcanzado en materia de control de la inflación en México. En adición, muestra evidencia empírica a favor de que el anclaje de las expectativas de inflación, en particular de las de mediano y largo plazo, se ha fortalecido recientemente. Considerando tres episodios, comprendidos en el periodo 2004-2012, en los que la inflación estuvo sujeta a choques de oferta, se encuentra que en el episodio del 2012 las expectativas de inflación mostraron mayor estabilidad. Los resultados muestran que la respuesta de las expectativas de inflación a choques de oferta ha disminuido en el tiempo, para acercarse a valores que no son estadísticamente distintos de cero. Ello sugiere un fortalecimiento de la credibilidad del compromiso de Banco de México con la estabilidad de precios. Palabras Clave: expectativas de inflación, anclaje de expectativas de inflación, choques de oferta.

The global financial crisis of late 2008 could not have provided more convincing evidence that price stability is not a sufficient condition for financial stability. In order to attain both, central banks must develop macroprudential instruments in order to prevent the occurrence of systemic risk episodes. For this reason testing the effectiveness of different macroprudential tools and their interaction with monetary policy is crucial. In this paper we explore whether two policy instruments, namely, a capital adequacy ratio rule in combination with a Taylor rule may provide a better macroeconomic outcome than a Taylor rule alone. We conduct our analysis by appending a macroeconometric financial block to an otherwise standard semistructural small open economy neokeynesian model for policy analysis estimated for the Mexican economy. Our results show that with the inclusion of the second instrument, the central bank may obtain substantial gains. Specifically, the central authority can isolate financial shocks and dampen their effects over macroeconomic variables.

This paper estimates a hidden Markov model where inflation is determined by government deficits financed through money creation and by expectations dynamics. The baseline model, proposed by Sargent et al. (2009) is able to distinguish between causes and remedies of hyperinflation, such as persistent or transitory shocks to fiscal deficits, and the de-anchoring of inflation expectations. The estimated sequence of monetized deficits provides an adequate account of inflation for the period 1969-94. The paper then extends the model to analyze the possibility that fiscal policy can affect inflation expectations in a context of Central Bank independence, as is the case of Mexico after 1994. Evidence is found that the exchange rate and sovereign interest rate spreads influence the evolution of inflation.Resumen: Este documento estima un modelo de Markov oculto en el cual la inflación se determina a partir de déficits fiscales financiados mediante emisión monetaria así como por la dinámica de expectativas de inflación. El modelo base, propuesto por Sargent et al. (2009), es capaz de distinguir entre las causas y remedios de procesos de alta inflación tales como choques temporales o persistentes en los déficits fiscales y el desanclaje en las expectativas de inflación. La secuencia estimada de déficits monetizados permite explicar el comportamiento de la inflación entre 1969-94. Este documento extiende el modelo para incorporar la posibilidad que la política fiscal pueda influir las expectativas de inflación en un contexto de independencia del Banco Central, caso de México desde 1994. Se presenta evidencia que sugiere que las fluctuaciones en el tipo de cambio así como en el diferencial de tasas soberanas EMBI influyen sobre la evolución de la inflación. Palabras Clave: Inflación, Expectativas de Inflación, Déficit Fiscal *Este documento es parte de la Red de Investigación Conjunta 2017 del CEMLA. Estamos especialmente agradecidos con Daniel Chiquiar y con Andrea Tambalotti, nuestro asesor académico, por sus comentarios en el transcurso de este proyecto. Agradecemos, por sus comentarios, a Nicolás

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