Abstract

SANCHEZ VARGAS, Armando; MARTINEZ VENTURA, Débora  and  LOPEZ-HERRERA, Francisco. Neutral interest rate and monetary policy for Mexico, 2020-2024. El trimestre econ [online]. 2021, vol.88, n.349, pp.201-218.  Epub June 18, 2021. ISSN 2448-718X.  https://doi.org/10.20430/ete.v88i349.1002.

Given the uncertainty in this regard, this paper analyzes the most appropriate monetary policy position for Mexico, which aims to maintain the inflation objective without negatively affecting product growth. The value of the neutral interest rate in Mexico for the next five years is estimated based on Taylor’s rule and a co-integrated vector autoregression (VAR) model (CVAR). The results suggest that the monetary policy rate is above the neutral interest rate, which, combined with the potential international rate cut, could grant the central bank for almost the entire six-year period a degree of freedom to maintain its rate below the current level; in the short term the current monetary policy rate could be cut by at least 25 points without risking convergence to the inflation target.

Keywords : Neutral interest rate; monetary policy rate; Taylor’s rule; CVAR models; E43; E47; E51; E52; E58; E61.