Abstract

MANTEY, Guadalupe. Interbank interest rate setting and inflation in Mexico. Inv. Econ [online]. 2011, vol.70, n.277, pp.37-68. ISSN 0185-1667.

This paper investigates the role of the monetary market interest the rate in the inflation targeting regime of an economy where uncovered interest parity does hold, and exchange rate pass-through inflation is large. On the grounds of the new theoretical and using quarterly data of the Mexican economy from 1986.1 to 2010.2, the author estimates a VAR model to disclose the direction of causality between the exchange rate and the interbank rate, and a dynamic model of the latter variable, that makes clear its interaction with sterilized intervention in the exchange market. The results reveal that the exchange rate remains the nominal anchor of the economy.

Keywords : inflation targeting; exchange rate; sterilized intervention; interest rate.

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