Financialization and monetary policy dominance in Mexico during the pandemic
DOI:
https://doi.org/10.7203/IREP.5.2.28069
Abstract
The article analyzes the effects of financing on economic policy in Mexico. The financing and financial liberalization process brought with it a series of structural modifications in implementing economic policy. Thus we entered a moment of domination of monetary policy, where the role of fiscal policy has been relegated and central banks have been entrusted with conducting state intervention in the economy. For its part, monetary policy in this context has two main characteristics, the inflation targeting strategy and the prioritization of the objective of price level stability. In economies such as Mexico, the modification in economic policy strategies has been echoed with the particularity that the exchange rate has become an implicit policy objective. This is explained by the strong dependence of the Mexican economy on the outside world and the possible consequences that a currency depreciation crisis caused by a massive outflow of capital could have on the economy. This also limits the Bank of Mexico's ability to act, having to consider international events to define its actions. The reaction of the Mexican authorities during the pandemic clearly showed the operation of this scheme of subordinate domination of monetary policy, which was highly ineffective as it was unable to impact bank financing through liquidity facilities, which resulted in. the deepest drop in economic activity since the Great Depression.
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