Central Bank Autonomy in Mexico / Volume VII: Unprecedented Stability
Author: Eduardo Turrent
Date: 2015-11-13T06:00:00+00:00
Publisher: Banco de México

Central Bank Autonomy in Mexico

A Historical Overview

Volume I

The Central Banking System in the World

Agustín Carstens

Governor

Roberto del Cueto Legaspi
Manuel Ramos Francia
Manuel Sánchez González
José Julián Sidaoui Dib
Deputy Governors

BANCO DE MÉXICO

EDUARDO TURRENT
Project supervision

AÍDA GARCÍA DIMAS
Historical research and project coordination

ANTONIETA CRUZ
Editorial coordination

ANTONIETA CRUZ
GERMÁN GÓMEZ
Iconographic research

NOSTRA EDICIONES
Editing, design, and prepress

SANDRA FERRER ALARCÓN
Graphic and editorial design

LUCERO VÁZQUEZ TÉLLEZ
ROSALINDA RESÉNDIZ PADRÓN
Graphic design

GREGORY DECHANT
Translation

MARÍA ESPERANZA ZOREDA LEE
Translation oversight

LIDIA CASTRO RAMÍREZ
Text transcription

LUIS EKIRO
GERARDO PEÑA TORRES
Banco de México images 2012

We would like to thank the following institutions for their support:
Sistema de la Reserva Federal
Banco Central de Chile
Centro de Estudios Monetarios
Latinoamericanos, CEMLA

Banco de México:
Oficina de Acervo Numismático
Subgerencia de Coordinación de Archivos
Subgerencia de Numismática y Comercialización

The reproduction of the images of banknotes used to illustrate the present work has been authorized by the Secretaría de Hacienda y Crédito Público (official authorization UBA/DGABM/1339/2005, dated November 2005).

First edition, 2012

All rights reserved

BANCO DE MÉXICO
Avenida Cinco de Mayo 2
Colonia Centro
Delegación Cuauhtémoc
06059, México, D.F.

IEBN: 484-132-000005-28

Printed in China

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means —electronic or mechanical, including photocopying, taping, or otherwise— without the written permission of the publisher.

Unprecedented Stability

Transition

Unexpected and highly adverse circumstances obliged Mexico to adopt a system of monetary policy using monetary aggregates. The decision had to be taken under pressure, with little time for thorough consideration and analysis. The focus was well known, both in theory and in practice, and there was no lack of literature on the subject. At least the a priori advantages of the focus were exactly known: the possibility of conducting domestic monetary policy with a level of inflation independent of levels outside the country and with accessible, easy-to-understand criteria for accountability: either achievement of goals as indicated by the monetary aggregates or the failure to achieve them. There had been no precedent in Mexico for the application of this strategy and international experience was inconclusive. The model Banco de México was about to implement had been used with varying fortunes in other countries two decades before. On the positive side there were some shining success stories, such as Switzerland and West Germany. On the negative side there were the examples of the United States, the United Kingdom, and Canada. The rather uncertain perspective had been summed up accurately enough by the Canadian central banker Gerald Bouey: “We didn’t abandon the supply targets of monetary aggregates, they abandoned us.”[1]

In the United States, the most distant precedent for the use of monetary aggregates was in the 1970s, when the Federal Reserve agreed on ways to track the M_1 aggregate. The prevailing scholarly consensus, however, is that the Federal Reserve never considered fulfillment of their goals indispensable to the expansion of the monetary aggregates, and meanwhile it pursued other objectives such as bringing down unemployment and moderating the fluctuation of interest rates.[2] The evidence reveals that in the 1979-1982 period, the Federal Reserve failed to meet its M_1 targets for each of the three years. With inflation under control, the Fed began to minimize the importance of monetary targeting and in February 1987 it announced that it would not set any more M_1 targets. The circle was finally closed in July of 1993, when Alan Greenspan declared, in an appearance before the U.S. Congress, that the Federal Reserve would no longer use monetary aggregates in the conduct of its monetary policy.

Central bankers of the United States and Mexico, Alan Greenspan and Guillermo Ortiz.

The Bank of England also used monetary aggregates during the 1970s and 1980s in response to concerns over growing inflation. Unfortunately, this focus of its monetary policy revealed the same defects as in the United States: a lack of correlation between the objective behavior of the aggregate and nominal income. As a result, in 1983 British monetary policy began to minimize the importance of the M_3 aggregate. The argument set forth was that financial innovation had blurred the correlation between this aggregate and the other variables. The provisional solution was to adopt a narrower aggregate (the monetary base), with first the temporary suspension (in 1985) and then the definitive abandonment (in 1987) of the M_3 aggregate as a reference in monetary policy. The experiment, along with all the uncertainties it had caused, was interrupted when Great Britain entered the European Exchange Rate Mechanism.[3]

In 1975 the Canadian authorities also responded to an inflationary trend by adopting a system of monetary aggregates to set policy. The formula of monetary gradualism that was adopted tracked the M_1 aggregate by fixing an interval around the target that would narrow little by little. According to Mishkin, however, the Canadian experiment was no more successful than those carried out in the United States and Great Britain. Although the Bank of Canada was able to meet the M_1 targets and the growth of the aggregate gradually slowed, the economy saw a resurgence of inflation. The strategy began to be phased out in 1978 amidst serious concerns about the fluctuation of the exchange rate and uncertainty as to the reliability of M_1 as a guide for monetary policy. In November 1981 the targets were definitively abandoned.

In contrast to these cases of the unsuccessful use of monetary aggregates by the U.S. Federal Reserve, the Bank of England, and the Bank of Canada, the experiences of West Germany and Switzerland tell a positive story. For many, one of the keys to West Germany’s success in the matter was the flexibility with which the nonrigid settings framework was adopted, and which consisted of a constant growth formula for a monetary aggregate. Otmar Issing, chief economist of the Bundesbank, explained the matter thus: “One of the secrets of success of the German policy of money-growth targeting was that… it often did not feel bound by monetarist orthodoxy as far as its more technical details were concerned.”[4] Another important factor was that in West Germany and Switzerland the focus on monetary targeting was also used for the purpose of communicating monetary policy.

Efforts at monetary targeting ran into greater difficulties in Switzerland than in Germany. Two factors contributed to this outcome: the rapid rhythm of innovation in the financial sector and the strong trend toward appreciation of the Swiss franc in the second half of the 1970s. Monetary targeting was temporarily abandoned in Switzerland in the fall of 1978 in favor of an objective exchange rate system. It was reestablished in 1980, but shortly thereafter the central bank was obliged to substitute the M_1 aggregate by the monetary base as a reference. Serious complications developed from 1989 to 1992, as the country faced a strong resurgence of inflation, attributed to the fact that central bank officials overestimated the growth of the monetary base in a context of rapid financial innovation. The result was that later in the 1990s the National Bank of Switzerland relaxed its dependence on targeting and even acknowledged publicly that the mechanism was of limited effectiveness.[5]

The Mexican experience with monetary targeting was very different from these briefly reviewed cases of the Federal Reserve, the Bank of England, the Bank of Canada, the Bundesbank, and the National Bank of Switzerland. For example, whereas in the United States, Great Britain, and Canada the monetary aggregates used as a reference to guide monetary policy were M_1, M_2, and M_3, respectively, Mexico’s handling of the system, as we shall see, was the singular result of a process of local experimentation, based on the country’s own experience. For the purposes of contrast, we may recall that in West Germany there was a change from the use of M_1 to M_3 in 1988. Switzerland, for its part, began by establishing targets based on M_1, but changed to a narrower aggregate in 1980. Things happened differently in Mexico: the authorities began by putting a limit to the annual growth of the monetary base and implicitly to the expansion of primary credit. When this formula proved ineffective, it was enhanced by quarterly ceilings on the expansion of domestic credit and the monetary base and minimum limits, also quarterly, on the accumulation of reserves.

The German Bundesbank, the very model of an autonomous central bank.

Banco de México documentation from 1995 to 1998 seems to reflect certain doubts on the part of the authorities about the effectiveness of monetary targeting and applying the de facto regime, especially from 1995 through 1997. A good example is the apparent ambiguity of a paragraph in the “Monetary Policy Statement for 1995”:

Most central banks have ceased to adopt quantitative targets as concerns the evolution of their own credit or monetary aggregates, such as notes and coins in circulation, currency, and others. Owing to the technological changes and financial regulation of recent decades, this means that the more or less stable relationship which used to exist between these aggregates and nominal GDP has been largely lost.

In spite of the foregoing, the present crisis of confidence in the national currency makes it advisable for the Central Bank to adopt a policy of extremely strict primary credit. It has done this by imposing a limit on the growth of its domestic credit for the year.

This formula may bring the inflationary expectations of economic agents into line with the price forecasts contained in the economic program adopted by the Federal Government, which meet the stipulation of the Unity Agreement to Overcome the Economic Emergency.[6]

In the 1995-1997 period the formula of setting targets for the monetary base, primary credit, and the accumulation of international reserves was an important component of Banco de México’s monetary policy, though by no means the only one. Other tools were also used: 1) yearly inflation targeting; 2) a commitment to provide a monetary base proportional to demand; and 3) the use of the “short position,” commonly known as a corto in Spanish, as a discretional measure to soften or intensify a restrictive monetary stance until inflation was eradicated. As for the formula of monetary targets, an important change was incorporated in the monetary program for 1997: an estimate of the evolution of the monetary base, an element to which a great deal of weight was given for a time:

By attempting daily to match the monetary base provided to demand, Banco de México could potentially find itself satisfying a demand for money consistent with higher inflation than it wishes. In order to avoid this situation, the Bank constantly compared the evolution of the base with what would in principle be consistent with the inflation estimate for the year.[7]

In the forecast of the monetary base for 1997 there is a clear pattern of seasonal movement that is repeated every year in the case of this monetary aggregate. The marked seasonality of monetary base demand, especially toward the end of each year, led to the erroneous perception that in certain periods monetary policy tended to be highly expansionary. For this reason, in the monetary policy programs for the years from 1997 on, it was decided to publish both the end-of-quarter and daily forecasts of this aggregate. This was apparently an attempt to convince public opinion that seasonal increases were consistent with the demand for the monetary base and therefore did not reflect a more expansionary monetary policy. Nevertheless, by shortening the forecast periods, the authorities increased the probabilities that goals would not be met, owing to the possible effect of transitory phenomena or fortuitous events. In short, the absence of a correlation between the behavior of money and price levels is more likely over the short term.[8]

Owing to the great uncertainty created by high inflation, results in this area for 1995 and 1996 were far from their targets: 51.2% in 1995 compared to a target of 42% and 27.7% in 1996 against a target of 20.5%. In 1997, however, inflation of 15.7% was only seven decimal points off the forecast. In any case, it would be hasty to draw conclusions about the effectiveness of monetary targeting from these results, since other monetary instruments also contributed to them, particularly the application of discretionary measures such as the modification of the so-called corto. Through modifications of the corto, conditions of stability were restored to disturbed financial markets and inflation forecasts aligned with goals.

The key results on the basis of which Banco de México decided to abandon monetary targeting came in 1998 and 1999. In 1998, while the growth of the monetary base was 20.8%, relatively close to the target of 22.5%, the divergence between the inflation target (12%) and observed inflation was very large, 6.5 percentage points, to be precise. Results for 1999 showed even greater divergences, though in the opposite direction this time. Inflation came in lower than the target, though very near to it (12.3% compared to the target of 13.0%), while the target for the expansion of the monetary base more than doubled the observed figure (43.5% compared to 18.1%). A study carried out by Banco de México offered the following explanation of the phenomenon:

In the 1998-2000 period the importance given to the growth of monetary aggregates for the purposes of forecasting inflation continued to diminish. Although the estimates made of monetary base demand indicate the existence of a stable long-term function, short-term instability makes it inadvisable to use the aggregate as an intermediate objective in monetary policy. Recent studies… have shown a stable long-term monetary base demand for the period 1982-2000. Moreover, estimates of long-term elasticity are consistent with a demand for money of the Baumol-Tobin model. Nevertheless, divergences between short-term and long-term demand are pronounced (almost 7.9%), gradually disappearing over prolonged periods (50% over four quarters and 95% over sixteen quarters). Therefore, although the relation is maintained over long periods, periods of a single year can still show considerable divergences.[9]

Guillermo Ortiz, who has had a long professional career at Banco de México.

In the Banco de México monetary program for 1998 it is already possible to detect certain clues to doubts, not so much about the viability of monetary targeting in principle as of the feasibility of making reliable forecasts of the monetary base. Nevertheless, the program employed the quarterly periods that had been used since 1996 for the purposes of forecasting the growth of primary credit and the monetary base and the minimum accumulation of international reserves. The document clearly states that, in spite of the central bank’s commitment to adjust the money supply to demand daily, “the growth of the monetary base could be validating higher inflation than desired, either because the aggregate in question is growing at an excessive rate or because the relation between the monetary base and prices has changed.” The monetary policy program for 1998 describes a procedure for ensuring that the money supply does not grow above demand. It consists of comparing daily

…the behavior of the actual base with what in principle would be consistent with the inflation target for the year. This hypothetical behavior is very difficult to determine in such a way that it remains valid for the entire year, owing to the following factors: (a) the relation between the base and inflation can change over time; (b) the assumptions on the basis of which the forecast of annual monetary base demand is made (growth of GDP and interest rates) may not materialize; and (c) the relation between monetary base demand and the variables that explain its behavior may also change over time.[10]

The year of disillusionment with the use of a forecast of the monetary base for the purposes of setting policy was 1999. At the end of that year, the divergence between the forecast and the observed figure was 100%. In its monetary program for the year 2000 Banco de México offered a detailed explanation of the phenomenon. Exactly seven factors were identified, some of a purely circumstantial nature, as determining causes. At the end of this account, there was an explicit mea culpa on the part of the central bank authorities which deserves to be recalled. It referred to “Banco de México’s underestimation of the process of remonetization taking place in the Mexican economy.”[11] The main point was the repercussions of remonetization on the economic policy model to be followed, in which forecasting the evolution of the monetary base lost almost all significance.

As inflation diminishes, the relation between money and prices becomes more uncertain, giving rise to situations such as that of 1999. As is well known, while the monetary base grew ever faster during the last part of that year, there was at the same time a significant drop in the inflation rate. This disconnection highlights the fact that movements in the growth of the monetary base provide imprecise information concerning inflationary trends, present and future. This is why the usefulness of tracking the monetary base as a reliable indicator of inflationary pressures has recently diminished. As a result, the analysis of these pressures should be based on a careful study of an entire series of indicators that provide information about the phenomenon of inflation.[12]

The epilogue to this process of abandoning monetary targeting was written by Guillermo Ortiz, the Governor of Banco de México, in a speech delivered at the Bankers’ Convention in March of 2000. On that occasion, Ortiz spoke explicitly about the system of objectives toward which Banco de México had moved, which would make it possible to apply a fundamental idea: “for monetary policy to fulfill a preventive function with respect to rising prices and for central bank actions to have an anticipatory character.” Alluding to the events that had led to this change of focus, Ortiz first mentioned the “formula of a floating exchange rate” and then the advisability of setting “a highly visible intermediate target: the monetary base.” Nevertheless, he explained, “as inflation came down it became evident that the short-term correlation between the growth rate of the monetary base and inflation is unstable.” This phenomenon was clearly displayed in 1999, when the base grew more than expected and the inflation rate closed below the forecast.[13]

The Inflation Targeting Framework

The inflation targeting framework was gradually adopted in Mexico.

Before describing the milestones of this process, from a theoretical point of view, the conditions to attain a framework of this nature deserve mentioning. First, an inflation targeting (IT) framework can be implemented when inflation becomes a stationary process, while at the same time the IT framework is a necessary condition for inflation to remain as a stationary process.

There are two other conditions that are also relevant in order for this framework to be successful. First, it is very important that the economy is not under “fiscal dominance” or, in more positive terms, that the economy has sound and orderly public finances. Second, special consideration must be given to the horizon under which monetary policy will operate and its function in building and strengthening financial stability. Having mentioned the essential conditions for an IT framework to operate, we can describe how Banco de México adopted it.

The first important step on the path toward inflation targeting was taken in October 2000, when the Board of Governors of Banco de México agreed to a medium-term inflation target: a 3% rise in prices by the end of 2003. As for intermediate targets, 10% was established for 2000 and in September of that year a target of no more than 6.5% was announced for 2001. The target set for the end of 2002 was no more than 4.5%.[14] This policy of announcing inflation goals was given an important development in June of 2002, when the figure of 3% inflation was announced as the permanent target of Banco de México’s monetary policy.[15]

Vicente Fox Quesada being sworn in as President of Mexico.

An importantly preliminary circumstance was Banco de México’s decision to launch a new quarterly publication to report on inflation, announced in its monetary program for 2000. The first issue of the report, which dealt with 1Q00, went into circulation in April.[16] The purpose of the publication was to improve Banco de México’s communications and the explanation of its policies to the general public.

The final step was taken in January of 2001, with Banco de México’s official announcement of its adoption of the inflation targeting framework. The operational reasons for this reform have already been explained: the impossibility of conducting monetary policy by using monetary aggregates to set intermediate targets. The underlying reason was to increase the effectiveness and transparency of monetary policy “in the face of the changes the Mexican economy is undergoing” in the course of recent years. This declaration highlighted the fact that Banco de México’s monetary policy was based on “continual analysis” of all those variables that “influence the behavior of inflation” and can be useful to forecasting future price level trends.[17]

In the Inflation Report for the second quarter of 2001, published in July, three additional measures were announced. One of them, already mentioned, was the setting of a long-term monetary policy goal. The second was an official indicator for that long-term goal, the National Consumer Price Index. And the third was the creation of a fluctuation band, of one percentage point on either side, around the long-term inflation target. In other words, there was a margin of variability of 2% around the long-term inflation target of 3% annually.[18]

Worth recalling, if only in synthetic fashion, are the reasons given for implementing these three measures. Four considerations went into the establishment of the long-term goal. First, the bank included studies showing how the methodologies of the inflation indexes tend to overestimate annual inflation by 1.5% or 2.0%. For this reason, and because of the practical impossibility of the nominal interest rate approaching its natural limit of zero, it was not advisable for the goal to be set too near to that minimum. Finally, international experience suggested that an inflation target in a developing country should be somewhat higher than in a developed country.

The National Consumer Price Index was chosen as the ideal indicator for the long-term goal for three reasons. It was the indicator best known to the general public, traditionally used as a reference in contracts and negotiations. Also, it was announced every two weeks and it was the most complete and representative price index in Mexico. Finally, there were also three reasons for establishing a margin of variation around the long-term target. It was realized first, that monetary policy does not have a direct and immediate effect on prices and second, that there was a group of prices in the economy with little or no relation to the actions of the monetary authority, such as prices set by other authorities or prices of fruits and vegetables, which are essentially determined by variations in the weather. Third and last, unanticipated variations of the exchange rate and of wages influenced inflation in a way impossible to predict.[19] Experience was the main factor in deciding on the width of the band: it was determined on the basis of the historical variations in inflation as measured by the core price index and the sub-indexes not included in the core index.

A definitive operational format was given to the inflation targeting framework in October 2002. In the Inflation Report on the third quarter of the year, the Board of Governors of Banco de México announced its decision to issue a calendar of monetary policy measures. This was done in order to “offer the public greater certainty regarding the [central bank’s] stance on monetary policy” and the behavior of interest rates. The measure also addressed the need to emphasize “the medium-term perspective” within which it framed monetary policy and to improve communication. These purposes would be well served by a predetermined calendar of monetary policy actions. In any case, Banco de México reserved the right to carry out actions not scheduled on the calendar under extraordinary circumstances.[20]

Table 1 shows a chronological summary of the process leading to the definitive adoption of the inflation targeting framework by Banco de México. In chronological terms, the process went through three basic stages. The first stage extended from September 1999 to October, with the announcement of the creation of a quarterly publication on inflation and of the core inflation index, and the setting of the course to achieve an inflation rate of 3.0% by the end of 2003. The second stage was the official adoption of the framework in January of 2001. In a third stage, extending from July to October of 2002, the long-term inflation goal was announced, the National Consumer Price Index was chosen as the official benchmark for inflation, the band of variation was created around the long-term target, and the decision was taken to publish an annual calendar of monetary policy measures.

Table 1
Banco de México
Transition to an Inflation Targeting Framework

No.

Measure

Date

Source

1

2000 Inflation Target (10%)

Sept. 1999

Press release

2

Quarterly Inflation Report

Jan. 2000

Monetary Program for 2000

3

Core Inflation Index

April 2000

January-March 2000
Inflation Report

4

2001 Inflation Target (6.5%)

Oct. 2000

July-September 2000
Inflation Report

5

2003 Inflation Target (3%)

Oct. 2000

July-September 2000
Inflation Report

6

2002 Inflation Target (4.5%)

Oct. 2000

July-September 2000
Inflation Report

7

Official adoption of inflation
targeting framework

Jan. 2001

Monetary Program
for 2001

8

Long-term Inflation Target

July 2002

April-June 2002
Inflation Report

9

Price index as reference
for the long-term target

July 2002

April-June 2002
Inflation Report

10

Band of variation around
long-term target

July 2002

April-June 2002
Inflation Report

11

Calendar of monetary
policy measures

Oct. 2002

July-September 2002 Inflation Report

Source: Banco de México.

Many of the characteristics of the inflation targeting framework had been part of other focuses of monetary policy, but perhaps what makes this model stand out is the combination of so many elements in a single formula:

a. Stability as the priority of the central bank.

b. Floating exchange rate.

c. Central bank autonomy.

d. Setting of medium and long-term inflation goals.

e. Analysis of all economic variables to detect inflationary pressures.

f. Monetary policy actions with a preventive purpose.

g. Transparency and an effort to communicate with the public in order to gain credibility for the monetary authority and its actions.

h. Rendering of accounts to legitimize the autonomy of the central bank.

The foregoing list merits several comments. First of all, the autonomy of the central bank is indispensable to its priority of ensuring monetary stability, especially if there are going to be annual inflation goals to be met. The rendering of accounts is the necessary counterpart of autonomy. If the central bank is an autonomous entity, it must inform the public in orderly fashion of what it does and of how and why it does what it does. The preventive aspect of monetary policy can be justified by the need to minimize costs in combating inflation. This is also achieved through transparency and effective communication, whereby the central bank earns credibility and the public trust.

Mexican President Vicente Fox Quesada with Guillermo Ortiz, Governor of Banco de México.

The first advantage of the inflation targeting framework is that it rests on a solid institutional basis: the autonomy of the central bank. Alex Cukierman, one of the most eminent authorities on central bank autonomy and its connection with the ability of monetary policy to reduce inflation, had written that the advantages of autonomy can be explained on a both a theoretical and empirical level.[21]

The theoretical argument is premised on the idea that public servants and politicians tend in general toward an inflationary bent in the performance of their duties. This is because persons elected or appointed to perform some task of government often have short-term goals, including even the nomination to another elected position. These persons tend therefore to incur in excessive spending to carry out public works or temporarily stimulate economic activity. Thus, the autonomy of the central bank constitutes the most effective bulwark against this inflationary bias of political activity.

Many studies over the years have turned up empirical evidence that there is a strong inverse correlation between central bank autonomy —especially when it is robust— and permanently low inflation. On the other hand, a weak central bank has been proven to be associated not only with higher inflation but also with slower economic growth.

Guillermo Ortiz, Governor of Banco de México, and Secretary of Finance Francisco Gil Díaz.

The second advantage of the inflation targeting framework is the flexible exchange rate regime which is one of its essential components. As we have seen, it was thought at first that the floating exchange rate would be a temporary measure in Mexico, for two reasons: first, because excessive fluctuation of the rate would force the adoption of a different kind of regime; and second, because Mexico had no experience in stabilizing in a context of high inflation with the exchange rate as an anchor. As it happened, however, the floating rate regime began to produce positive results.

The floating rate regime did not lead to excessive fluctuation in the exchange rate, and the rest of the characteristics of the regime are positive virtues. First, there is the compatibility of a flexible rate with the possibility of successfully bringing down inflation through monetary policy. Although this has since ceased to be cause for concern in Mexico, it was not the case for several years, until the inflation targeting framework had been definitively established. Another virtue of the floating rate regime is its use as a preventive mechanism to avoid a balance of payments crisis.

The floating rate regime provides mechanisms to discourage, though they do not provide absolute protection against, short-term capital inflows. The slightest adjustment in the exchange rate can cancel out profits expected from the difference between domestic and external rates. As a result, the floating rate acts, to a great extent, as a disincentive to massive speculative attacks on the domestic currency, as speculators risk finding themselves caught between two constraints: having to abandon peso positions at battered prices in order to purchase foreign currency at an ever higher rate.

President Felipe Calderón flanked by Banco de México Governor Guillermo Ortiz (to the left) and Secretary of Finance Agustín Carstens (to the right).

Credibility and Monetary Policy

A central bank has only indirect influence on prices through its monetary policy, and the connection is even more tenuous and imperfect if we consider that the effects of the measures it takes are necessarily delayed in time. Hence the importance of a current of thought that emphasizes the role played by the expectations of economic agents —producers and consumers— in effective monetary policy. Starting with the so-called revolution of “rational expectations,” and having as a premise that individual’s expectations on economic variables are, on average, correct, this model has emphasized that the result of an economic policy depends crucially on public confidence or lack thereof in its coherence and effectiveness.[22] If monetary policy enjoys credibility among the public in general and especially the economic agents that set prices, its actions will have swifter and more effective repercussions on prices.

Effectiveness

The inflation targeting framework is not a tool of monetary policy but rather a strategy. This point must be insisted on. By repeatedly achieving its goals, the central bank gains credibility and by complementing this asset with transparency and trustworthy, convincing communication, it succeeds in aligning the expectations of economic agents regarding inflation with the targets it has established, in full visibility. The credibility of the central bank is therefore the key to this strategy. If the central bank earns and maintains credibility, its monetary policy actions will affect the price structure, that is, they will be transmitted more fluidly and directly. At the same time, if credibility is strong, occasional fluctuations of the exchange rate within the floating rate regime in effect will not affect prices immediately and automatically.

It is not by chance that precisely this has been demonstrated in Mexico as inflation has been coming down since the year 2000, with the inflation targeting framework firmly in place. Inflation has been reduced and, at the same time, the effect of fluctuations in the exchange rate on prices has been less intense. These are encouraging signs. Nevertheless, the task of stabilization has not been finished. It is important that these efforts continue to be carried out at the lowest possible cost for the economy.

Efficiency

There is no use in a remedy that cures the disease but kills the patient. Heterodox stabilization programs —as for example “the Pact,” in its day— were adopted not only in order to extirpate inflation from the body of the economy (when the infection had already reached the bone marrow, however), but also to do so at an acceptable social cost. In a modern democracy, it would be terribly costly —and maybe even impossible— to take on inflation at the cost of the harmful stagnation that accompanies deflation; in the worst case scenario, inflation might be eradicated but at an unthinkable social cost. That is why it is so important to avoid the possibility that, for short-term political reasons, the central bank be obliged to adopt an expansionary monetary policy.

It was precisely in order to buffer the costs of restoring stability that Banco de México had always insisted it be a gradual process. Gradualism is advisable in confronting inflation, though the effects of reestablished stability are also felt in a gradual way. As investors become convinced that stability will be permanent, real interest rates go down, propelling investment and productive activity.

The inflation targeting framework has not only proved effective in combating inflation, but seems to be more efficient than other schemes (although in light of the recent global crisis this statement deserves to be revised). By “effective” it is to be understood here that monetary policy requires lower interest rates to achieve its end: stability. One reason for this is that the framework weakens the effects of occasional inflationary disturbances. An essential element of the strategy is that it draws the attention of economic agents to the temporary nature of inflationary disturbances and so wards off the secondary, tertiary, and further round effects of such episodes on price levels. Without the confidence of agents in monetary policy, such random disturbances tend to provoke successive wage and price increases that demand a more restrictive reaction from the central bank.[23]

It should not be surprising, therefore, that the practice of “guiding expectations” has emerged in a stabilizing and also productive sense in the context of the inflation targeting framework. The practice of guiding expectations leads to less uncertainty, allows for better planning by market participants, attenuates ups and downs in interest rates, and makes monetary policy more effective and more efficient. As Jacob Frenkel has pointed out: “The new policies demonstrated that it was not necessary to maintain a low growth rate in order to apply a successful stabilization strategy.”[24]

From a broader historical perspective, it might be said that the stabilization efforts begun in Mexico in 1995 were simply not allowed to fail. Mexican society could not be disappointed on this front again. It was the third attempt to deal with inflation in twenty years and had to be carried through successfully. The new strategy would not be derailed by external events, as in 1985 and 1986, or fall victim to the internal flaws of the model and political instability in Mexico, as in the course of 1994.

The disinflation program launched at the beginning of Ernesto Zedillo’s six-year administration managed to progress by overcoming difficulties. The reasons for its success can be divided into three groups. First of all, negative factors such as low oil prices and high international interest rates were offset in the current account by other positive ones. Second, great technical skill was demonstrated in designing and applying the policies to achieve stabilization. And third, but no less important, Mexico reaped the benefit of both theoretical progress in monetary policy and the practical experience of other countries in the same field.

These three factors came together in such a way that Mexico, after much effort, was close to restoring price stability within its borders. The design and application of the strategy to recover stability deserve a special mention. Mexico’s experience has been instructive from this perspective. There was trial and error, there was hesitation, but what predominated was perseverance. As stabilization has been consolidated, the model has grown stronger and been still further refined.

Toward a Future of Stability

The inflation targeting framework represented an important technical advance in Mexican monetary policy. Nevertheless, observers who expected a steady march toward price stability over the following years would be mistaken. No one foresaw that awaiting Mexico was a price rise shakeup that would make its impact felt in a sequential fashion. Although the first pressure was felt during the second quarter of 2002, lasting until well into 2003, the most damaging aftershocks would be felt in that two-year period so fateful for the entire global economy, 2008-2009. In total, Mexico went through six inflationary episodes of differing kinds between 2002 and 2009.

Already in Banco de México’s Monetary Program for 2003, the authorities had drawn attention to the fact that an important component of the inflation targeting framework was the emphasis on “the use (sic) of a systematic focus that seeks to identify the origin and characteristics of inflationary pressures.”[25] As in other strategies, the identification of the origin of these pressures had a proactive purpose: so that monetary policy could intervene to counteract the effects of these pressures on prices. Implicit in this notion was a rule governing the reaction of Banco de México’s monetary policy which soon became explicit in official documents:

[I]t is important to bear in mind the importance of identifying both the origin and characteristics of inflationary pressures. When these have a supply-side origin, they tend to reflect changes in relative prices that affect inflation temporarily. That is why it is advisable to ensure that such disturbances do not contaminate the process for determining prices in the economy, particularly wage negotiations, in order to avoid subsequent prices increases (second-round effects)… On the other hand, when inflationary pressures come from the demand side, the recommendation is that the monetary authority restrict its policy stance in order to avoid a generalized increase in prices.[26]

President Felipe Calderón Hinojosa (2006-2012).

The typical case of inflationary pressures originated by a demand shock outlined in the foregoing lines was not observed in the following years, which were characterized by supply shocks. One example occurred in the last three quarters of 2002 and in the first half of the following year. Starting in April 2002, as a result of a series of price rises episodes, inflation forecasts for the end of 2003 had begun to get higher and higher, reaching 4.4% annually in February of that year, though the official target had been set at 3.0%. The restrictive reactions of monetary policy began in September 2002, with two increments of the corto in the last quarter of that year and three more in the first quarter of 2003. As a result, expectations for both the end-of-year rate and rate for the following twelve months reversed their direction starting in February of 2003. Nevertheless, in spite of the restrictive actions, the inflation rate rebounded and closed at 3.98% at the end of 2003.

In October 2007 Banco de México announced an instrumental change that cannot be left out of this account: the replacement of the corto as an operational goal by the one-day interbank interest rate, known as the “bank funding rate.” The corto had been a Mexican invention. No other central bank in the world had used as an instrument of intervention “the manipulation of the consolidated balance of the current accounts of the banks held by the central bank.” The corto had the disadvantage of affecting only a very small portion of the liquidity supplied by Banco de México and, for public relations purposes, it was very difficult to explain its mechanism and functioning.

What occurred in practice was that, in circumstances of relatively low inflation and stable financial markets, the advantages of operating with a short position diminished. In such conditions greater specificity was required about the desired level of interest rates, especially short-term ones. A key precedent of this focus was when the central bank authorities decided to put a minimum limit on interest rates at Banco de México’s auctions. Starting in April 2004, with this precedent in mind, announcements of the amount of the corto began to be accompanied by more precise indications of the desired level of “the monetary conditions or interest rates.” Specifically, through press releases, Banco de México ensured that interest rates of “one-day interbank funding were adjusted in precise and orderly movements.” In short, the transition from the corto to an interest rate target was “a natural step” which was announced officially, as we have seen, in October 2007.[27]

Of much greater scope, harm, and importance were the price increases in some assets in international markets in 2008 and 2009. At its point of greatest severity, these events pushed annual inflation up to 6.5%, more than double the long-term target. The Mexican economy received two external shocks that caused intense inflationary pressures. The first, felt in the summer, was caused by a rise in the international prices of commodities. Later in the year, in September, October, and November, there was a sharp increase in risk aversion in the international financial markets, which translated into an intense run against emerging economies, Mexico included. Domestic inflationary pressures had a great deal to do with the dizzying depreciation of the exchange rate, which shot up to nearly 15 Mexican pesos to one US dollar.[28]

These were the first manifestations in the Mexican economy of the severe financial crisis in the United States, which worsened dangerously with the failure of the Lehman Brothers investment bank in September of 2008. In Mexico the phenomenon caused expectations of inflation for the following four years to be revised upward to 3.52% at the end of 2007 and to 3.93% a year later. Monetary policy reacted as it usually did, pushing the one-day interbank interest rate to 7.5% in May 2008 and to 8.25% in August of the same year. Nevertheless, the Mexican authorities soon discovered that the inflationary movement of 2008 was qualitatively different from the others they had faced since 2003. The seriousness and variety of many of the repercussions were unprecedented, demanding innovative responses from the authorities.

The collapse of Lehman Brothers in 2008 caused a tidal wave of distrust and uncertainty in the global financial markets.

Unlike other financial crises of the past, the one that began in 2008 originated in developed countries. Its severity can be explained by this fact and by the dimensions of the losses it caused. Its spread to emerging economies can be attributed to the financial globalization that had been taking place over the previous decade or so. It did not take long for prices of the securities issued by most emerging economies —and their stock market indexes— to begin to deteriorate. It also became increasingly difficult for these economies to obtain credit in international markets. In this context of intense uncertainty, risk aversion became even stronger and caused a wave of liquidations of investment positions in the securities of emerging economies, along with a strong supply of local currencies. This was Mexico’s experience at the time, as capital flight led to a severe depreciation of the peso.

In this crisis situation, Banco de México and the Secretariat of Finance reacted quickly in order to keep the domestic financial markets in good running order. Not acting as required, and in a timely manner, would risk allowing the financial difficulties to be transmitted to the real economy, with harm to jobs and the general welfare. Thus, the measures taken had several purposes: to provide the exchange market with much-needed liquidity; to improve liquidity conditions in the financial markets; and to eliminate obstacles to the orderly functioning of these markets.

The theory and practice of the central bank had long ago defined the function of “lender of last resort,” in the happy expression attributed to the celebrated English banker Walter Bagehot.[29] The repercussions of the worldwide financial crisis of 2008-2009, however, gave new and hitherto unimagined significance to the phrase. In short, the experience was a watershed. In the classical conception of the role of lender of last resort, the central bank must provide liquidity to commercial banks that have suffered an unexpected run on their deposits. In Mexico, in its modern variant, this notion began to include the financial markets and other intermediaries. Interventions to relieve shortages of liquidity in the exchange market must also be taken into account. In order to achieve this, the central bank must have sufficient international reserves, as well as ready access to foreign currency in cases of emergencies.

At the critical conjuncture of 2008-2009, Banco de México offered dollars to the market, with and without minimum prices, at extraordinary auctions and daily auctions. In order to ensure a sufficient supply of dollars, it negotiated a US$30-billion line of currency exchange with the U.S. Federal Reserve and a flexible credit line for US$50 billion (later renewed to US$70 billion) with the International Monetary Fund. Acting as lender of last resort, Banco de México also offered, in addition to its traditional mechanisms, new liquidity mechanisms on behalf of financial intermediaries. And it created an innovative mechanism for the interchange of interest rates, as well as other programs for repurchasing government paper in order to guarantee liquidity in the bond market.

These operational experiences, conversations with international experts, and various cooperative efforts, especially in conjunction with the U.S. Federal Reserve, the International Monetary Fund, and the Bank for International Settlements, led to a reformulation of policy aimed at financial stability. In the Banco de México Law enacted in 1993 two of its objectives were stated: “to promote the sound development of the financial system and the optimal functioning of the system of payments.” For some time there had been elements in Mexico of a macroprudential policy, such as the long-standing provision to square foreign currency asset and liability positions in the banking system. Another step forward was taken with the rules for making the terms of these positions coincide in time. Later standards were also established for limiting credit to parties related with intermediaries and for interbank exposure. Nevertheless, it was the impact of the 2008-2009 financial crisis that gave macroprudential policy special importance.

U.S. President George W. Bush greets his Mexican counterpart Felipe Calderón.

The so-called microprudential policies had traditionally been aimed at addressing liquidity risks and the solvency of individual financial intermediaries, as well as protecting the deposits of savers. The mechanisms of rating portfolio and constituting preventive reserves, along with the formulas for minimum capitalization of financial institutions, were all designed to serve these ends. In Mexico, there were also deposit insurance plans to protect users. Although it can be difficult to draw a line between microprudential and macroprudential policies, the ends of the latter have a special importance in the framework of financial globalization: to contain the dangers arising from liquidity and solvency problems in the entire financial system (system risk, as it is called in technical jargon) and to prevent their impact on the real economy.

Without financial stability it is impossible to guarantee price stability, the leitmotif of central bank autonomy. In Mexico, as in the rest of the world, for different reasons, the central bank plays a key role in maintaining financial stability, not only as a lender of last resort but also for other operational reasons of considerable importance. These include its proximity to financial markets, the regulatory powers it exercises, its participation in the supervision of banking and financial institutions, and its role as a support for the markets and system of payments through its exclusive authority to issue banknotes. But there is another reason: financial instability erodes the channel through which monetary policy is transmitted. When there is financial instability the instrumental effectiveness of the central bank in meeting its inflation targets is diminished.

An important element to bear in mind in order to ensure a stable price environment in the medium and long term is the proper functioning of the financial system. The accumulation of economic and/or financial imbalances can affect, among other things, the evolution of economic activity, through a wealth effect that disturbs aggregate demand and, consequently, the inflationary dynamic. This is why, in order to ensure price stability, monetary policy must be applied in a time frame sufficiently large for the risks inherent in the evolution of financial variables, such as credit aggregates and economic solvency indicators, to be identified.[30]

Since financial stability involves both monetary and non-monetary questions, there is need for cooperation among various authorities to maintain it. For this reason, a multi-institutional forum for collaboration and cooperation was created in Mexico in mid-2010. Along with the Secretariat of Finance, the regulatory body, and other authorities in various aspects of the financial sector, Banco de México participated in this forum from the time it was established, serving in the capacity of secretary, while the Secretariat of Finance presided. Thus, according to its founding decree, the Mexico’s Financial Stability Board is designed to “evaluate, analyze, and coordinate authorities in the financial field,” with a view to “promoting financial stability, preventing interruptions or substantial alterations in the functioning of the financial system, and minimizing their impact when they do exist.”

The specialized area created at Banco de México to deal with financial stability has participated since its establishment in the following tasks: the analysis and measurement of systematic risk and the design of macroprudential policies aimed at reducing systematic risk, preparing the financial system to deal with shocks of different kinds, and, most importantly, preventing such shocks from materializing in the first place. These are tasks with many technical implications, for which both inventiveness and considerable practical sense are required. Systematic risk is a variable that will always be stalking among other reasons because the links between domestic and international financial markets are tight and evolve over time, and therefore the risks of contagion also change. Another aspect of this department’s work is to coordinate its activities with the other authorities on the Financial Stability Board. For Banco de México, part of the challenge of this coordinated work is the maintenance of its autonomy. The idea is that the members of the Stability Board formulate policy guidelines together but each of the participating entities is responsible individually for their implementation.

President Felipe Calderón exchanges impressions with central banker Agustín Carstens.

While all the progress just described was being made on the financial stability front, on the monetary policy front Banco de México continued to persevere in its stabilization efforts. The actions were carried out in a context slightly more favorable to stability and the achievement of the long-term goal was within reach, if not quite definitive. In mid-2012 medium and long-term inflation expectations were just above the target of 3%. In 2010 two important steps were taken in the area of monetary policy. The first was the decision to publish the minutes of the sessions of the Board of Governors, “in the aim of increasing still more the transparency of the Central Bank.” The second measure was to modify the format for forecasts of the main macroeconomic variables through the use of graphs showing the central forecast and divergent projections with a probabilistic criterion.[31]

Governor Carstens speaking at Banco de México’s auditorium.

Price stability is not an end in itself. It is pursued as the necessary condition for achieving the ultimate ends of any economic strategy worthy of the name: sustained and sustainable growth with a constant rise in real wages (that is, in terms of their purchasing power) and increasing wellbeing for all sectors of society. Higher levels of inflation render the evaluation of investment plans much more risky and uncertain. As a result, in an unstable environment they are put off or carried out elsewhere, or the resources reserved for them are channeled into speculative investments with no social benefit or simply disappear in flights of capital. In other words, in an inflationary environment investment risks go up, and with them credit risks for intermediaries. This leads to a shortage of long-term financing for projects aimed at expanding productive capacity. In short, an essential advantage of stability is that it offers greater certainty, fostering the confidence indispensable to strong investment, enterprise, employment, and the general welfare.

Also of great importance are the causal connections between price stability and economic and distributive equality. When inflation exists, there are disorderly rises in prices, the exchange rate, and nominal wages, all racing against one another. Prices and the exchange rate tend to rise more quickly than nominal wages, leading to a virtually irreversible trend toward impoverishment for wage-earners, who always represent the majority in the country. At the same time, inflation tends to destroy savings in the domestic currency held by the middle class and majority of savers in the population. This threat exacerbates the atmosphere of uncertainty and provokes capital flight. The contrary happens when stability prevails.

Robust financial stability also strengthens confidence and certainty. The recent global experience has confirmed the damage that can be done by a financial crisis of wide scope. Nations must continue to establish policies and measures that will reduce the possibility of new financial crises and of their virulence, when they do occur. As a task that needs to be carried out in an orderly and coordinated way, international cooperation is key here. In the light of events since 2008, however, developed countries may be said to have a special responsibility. It was in the United States that the great subprime mortgage crisis developed, with all its contagious implications for developing economies. Governments must establish the indispensable foundations for the prevention of new crises. Leaving various circumstantial factors out of account, all financial crises have their origins in a common fundamental cause: excessive spending relative to revenues, financed in an unsound way.[32]

An integrated policy with a solid institutional framework, a set of sound and coherent strategies, designed with prudence and responsibility, and clear communication that transmits the message that there is consensus on how to avoid future financial crises would all be basic contributions to the creation of confidence, certainty, and credibility. Virtuous circles tend to feed on themselves, no less, unfortunately, than vicious circles. At the base of the virtuous circles of continuous progress to which we all aspire there is monetary stability and financial stability. It is necessary to preserve these conditions with all possible energy. Other economic strategies can also be consistent with this constructive end. Without consistence and compatibility among economic policies it is impossible to induce in economic agents the attitudes fundamental to material progress: confidence, certainty, and credibility. In the specific case of the central bank, transparency and accountability are essential in this regard. Central bank autonomy is a concrete legal and institutional expression of the democratic system of government, with separation of powers and the assumption of responsibilities before a sovereign people. Like any human creation, the democratic system cannot be perfect, but as the statesman Winston Churchill so truly said, it is superior to any other system conceived by civilization.

Endnotes

Unprecedented Stability

[1] Frederic S. Mishkin, “International Experiences with Different Monetary Policy Regimes,” National Bureau of Economic Research, Working Paper 6965 (February 1999), p. 14.

[2] Frederic S. Mishkin, “De metas monetarias a metas de inflación: lecciones de los países industrializados,” in Estabilización y política Monetaria: la experiencia internacional (Banco de México, 2002), pp. 114 and 115.

[3] Mishkin, “De metas monetarias a metas de inflación,” pp. 116 and 117

[4] Otmar Issing, “Is Monetary Targeting in Germany Still Adequate?” in Horst Siebert (ed.), Monetary Policy in an Integrated World Economy: Symposium 1995 (Tübingen: Mohr, 1996), p. 120.

[5] Ibid., pp. 16 and 17.

[6] “Exposición sobre la Política Monetaria para el lapso del 1° de enero de 1995 a 1° de enero de 1996,” Banco de México, pp. 53 and 54.

[7] “Exposición sobre la política monetaria para 1997,” Banco de México (January 1997), pp. 29, 30 and 31.

[8] Lorenza Martínez, Oscar Sánchez, and Alejandro Werner, “Consideraciones sobre la conducción de la política monetaria y el mecanismo de transmisión en México,” Banco de México, Documento de Investigación No. 2001-02 (March 2001) p. 230.

[9] Ibid., p. 233.

[10] “Exposición sobre la Política Monetaria para 1998,” Banco de México (1998), pp. 33, 34 and 39.

[11] “Política monetaria. Programa para 2000,” Banco de México (January 2000), pp. 31 and 32.

[12] Ibid., pp. 51 and 52.

[13] Guillermo Ortiz, address to the Asociación de Banqueros de México, in Memoria 63 Convención Bancaria, p. 41.

[14] “Informe sobre la inflación, octubre-diciembre de 2000,” Banco de México, p. 68.

[15] “Informe sobre la inflación, abril-junio de 2002,” Banco de México, pp. 75-77.

[16] “Informe sobre la inflación, enero-marzo de 2000,” Banco de México, p. 1.

[17] “Informe sobre la inflación, octubre-diciembre de 2000,” Banco de México, p. 59 and “Programa monetario para 2001,” Banco de México (January 2001), pp 66 and 67.

[18] “Informe sobre la inflación, abril-junio de 2002,” Banco de México (July 2002), p. 74.

[19] Ibid., pp. 24-80.

[20] “Informe sobre la inflación, julio-septiembre de 2002,” Banco de México (October 2002), pp. 77-84.

[21] Alex Cukierman, “Central Bank Independence and Monetary Control,” Economic Journal (November 1994).

[22] Federico Rubli Kaiser, “Banca central, política monetaria y credibilidad,” in Pascual García Alba et al. (eds.), El nuevo milenio (Mexico City: Universidad Autónoma Metropolitana / Ediciones Eón, 2004), pp. 75-108.

[23] Mishkin, “De metas monetarias a metas de inflación,” pp. 137 and 138.

[24] Jacob A. Frenkel, “La transición hacia objetivos de inflación,” in Estabilidad y crecimiento económico (Mexico City: Banco de México, 2006), pp. 106 and 107.

[25] Banco de México, Informe Anual 2003, p.96.

[26] Banco de México, Informe Anual 2004, pp. 88 and 89.

[27] Banco de México, Informe Trimestral sobre la Inflación (July-September 2002), Appendix 3.

[28] Banco de México, Informe Anual 2008, pp. 85, 93 and 94.

[29] Walter Bagehot, Lombard Street: A Description of the Money Market (London: John Murray, 1920), p. 61.

[30] Banco de México, Informe Anual 2010, pp. 46 and 47.

[31] Banco de México, Informe Anual 2010, p. 46.

[32] Agustín Carstens, “The Importance of Confidence in Macroeconomic Stabilization Efforts,” High-Level Public-Private Sector Conference, Institute of International Finance, Mexico City (24 February 2012).

Sources Consulted

Acemoglu, Daron et al. “When does policy reform work? The case of Central Bank Independence”, National Bureau of Economic Research, working paper 14033.

Aguirre Carrillo, Ernesto. La génesis de la banca central: antecedentes, creación y evolución de bancos centrales en el mundo occidental, Bogotá, Banco de la República, 1991.

Alesina, Alberto y Laurence H. Summers. “Central Bank Independence and Macroeconomic Performance: Some Empirical Evidence”, Journal of Money, Credit and Banking, Ohio State University Press, mayo 1993, Stable URL: http://www.jstor.org/stable/2077833.

Alvarado, Salvador et al. Proyecto sobre organización bancaria, México, Secretaría de Gobernación, Dirección de Talleres Gráficos, 1920.

“Análisis de las prescripciones fundamentales del anteproyecto de Ley del Banco Central”, Archivo de Manuel Gómez Morin, memorándum, s.a.

Arnone, Marco et al. “Central Bank Autonomy: Lessons from Global Trends”, International Monetary Fund, IMF Staff Papers, Vol. 56, No. 2, 2009.

“Ámbito internacional de la autonomía de los bancos centrales”, en Autonomía del Banco de México y perspectivas de la intermediación financiera, México, Universidad Nacional Autónoma de México-Corte de Constitucionalidad de Guatemala, 1994.

Aspe Armella, Pedro. El camino mexicano de la transformación económica, México, Fondo de Cultura Económica, 1993.

“Aylwin y Lagos satisfechos por Consejo del Banco Central”, La Nación, 6 de diciembre de 1989.

Bagehot, Walter et al. A Description of the Money Market, Londres, John Murray, 1920.

Banco de México, Estabilidad y crecimiento económico, México, Banco de México, 2006.

_____. Exposición sobre la política monetaria para 1997, México, Banco de México, varios años.

_____. Exposición sobre la política monetaria para 1998, México, Banco de México, 1998.

_____. Exposición sobre la Política Monetaria para el lapso del 1° de enero de 1995 a 1° de enero de 1996, México, 1996.

_____. Informe anual, México, Banco de México, varios años.

_____. Informe sobre la inflación abril-junio de 2002, México, Banco de México, julio de 2002.

_____. Informe sobre la inflación julio-septiembre de 2002, México, Banco de México, octubre de 2002.

_____. Informe sobre la inflación octubre-diciembre de 2000 y Programa Monetario para 2001, México, Banco de México, enero de 2001.

_____. Informe sobre la inflación, abril-junio de 2002, México, Banco de México, 2002.

_____. Informe sobre la inflación, enero-marzo de 2000, México, Banco de México, 2000.

_____. Informe trimestral de inflación, julio-septiembre de 2007, México, Banco de México.

_____. Política monetaria. Programa para 2000, México, Banco de México, 2000.

Banco Nacional de Comercio Exterior. México la política económica del nuevo gobierno, México, s.e., 1971.

Barrionuevo, José M. “A Maastricht Country South of the Rio Grande”, Barclays Capital Research, 21 de abril de 2003.

Bazant, Jan. Historia de la deuda exterior de México (1823-1946), México, El Colegio de México, 1968.

Bean, Charles R. “Crecimiento económico y desarrollo del Reino Unido: de la posguerra al caso de la Señora Thatcher”, Desarrollo y Sociedad, núms. 15 y 16, septiembre de 1984 y marzo de 1985.

Bett, Virgil M. Central Banking in Mexico, Ann Arbor, University of Michigan Press, 1957.

Bianchi L., Andrés. “La autonomía del Banco Central de Chile. Origen y legitimación”, Economía Chilena, vol. 12, núm. 3, diciembre de 2009.

Blinder, Alan S. The Quiet Revolution. Central banking goes modern, Nueva York, Yale University Press, 2004.

Calderón Vega, Luis. Iniciativas de ley presentadas por el Partido Acción Nacional, tomo I, recopilación, México, Editorial Jus, 1972.

Campa, Valentín. “Sobre las huelgas ferrocarrileras de 1958”, Solidaridad, 3ª. época, 31 de julio de 1970.

Capie, Forrest et al. The Future of Central Banking. The Tercentenary Symposium of the Bank of England, Cambridge, Cambridge University Press, 1994.

Carranza, Venustiano. Discurso pronunciado en el Salón de Cabildos, 24 de septiembre de 1913.

Carrasco, Camilo. Banco Central de Chile, 1925-1964. Una historia institucional, Santiago de Chile, Banco Central de Chile, 2009.

Carstens, Agustín G. “The importance of confidence in macroeconomic stabilization efforts”, High-Level Public-Private Sector Conference, Institute of International Finance, México, 24 de febrero de 2012.

_____ y Alejandro H. Werner. “Mexico’s Monetary Policy Framework under a Floating Exchange Rate Regime”, Serie Documentos de investigación del Banco de México, documento núm. 9905, mayo de 1999.

Clifford, A. Jerome. The Independence of the Federal Reserve System, Filadelfia, University of Pensylvania Press, 1965.

Conant, Charles A. The National Bank of Belgium, Washington, National Monetary Commission, 1910.

Conant, Charles A. A History of Modern Banks of Issue, Nueva York, Putnam’s Sons, 1927.

Cukierman, Alex. “Central Bank Independence and Monetary Control”, Economic Journal, noviembre de 1994.

Decreto por el que se reforman los artículos 28, 73 y 123 de la Constitución Política de los Estados Unidos Mexicanos”, en Banco de México, Informe anual, México, Banco de México, 1993.

Drake, Paul W (ed.), Money Doctors, Foreign Debts and Economic Reforms in Latin America, from the 1890’s to the Present, Wilmington, Delaware, Jaguar Books and Latin America, núm. 3, 1994.

_____. The Money Doctor in the Andes. The Kemmerer Missions, 1923-1933, Durham-London and London, Duke University, Press, 1989.

Edwin W. Kemmerer, Inflación y revolución, México, edición facsímil del Banco de México, 2010.

Elías Calles, Plutarco. “Informe de Gobierno”, Diario de los Debates del Congreso de la Unión, 1° de septiembre de 1925.

Excélsior, 24 de noviembre de 1960, p. 23-A.

“Exposición de motivos de la iniciativa de Ley del Banco de México enviada al H. Congreso de la Unión por el Ejecutivo Federal”, en Banco de México, Informe anual, México, 1993.

Fernández Hurtado, Ernesto (ed.). Cincuenta años de Banca Central, México, Fondo de Cultura Económica, 1976.

Fontaine, Juan Andrés. “Banco Central Autónomo: en pos de la estabilidad”, en Felipe Larráin y Rodrigo Vergara (eds.), La transformación económica de Chile, Santiago, Centro de Estudios Públicos, 2012.

Friedman, Milton y Anna Schwartz, A Monetary History of the United States, 1867-1960, Princeton, Princeton University Press,1963.

Fujiki, Hiroshi. The Monetary Policy Committee and the Incentive Problem: A Selective Survey, Tokyo, Institute for Monetary and Economic Studies, Bank of Japan, 2005.

García Alba, Pascual et al. (coords.) El nuevo milenio, México, Universidad Autónoma Metropolitana y Ediciones Eón, 2004.

Garritsen de Vries, Margaret. The International Monetary Fund, 1966-1977, vol. I, Washington, International Monetary Fund, 1976.

Gil Pechuán, Ignacio. “Orígenes de la integración en Europa”, http//personales.upv.esligil/Euro.pdf

Gil-Díaz, Francisco y Agustín Carstens. Some Hypotheses related to the Mexican 1994-95 Crisis. Banco de México, Serie Documentos de Investigación, documento núm. 9601, 1996.

Gómez Mont, María Teresa. Manuel Gómez Morin, 1915-1939, México, Fondo de Cultura Económica, 2008.

Gómez Morin, Manuel. “Al señor Jorge Vivas de Guayaquil”, Archivo de Manuel Gómez Morin, Ecuador, 29 de diciembre de 1937.

Gómez, Rodrigo. Textos de Rodrigo Gómez, México, Gráfica Panamericana, 1967.

González Casanova, Pablo. La democracia en México, México, Era, 1965.

Goodhart, Charles. The Evolution of Central Banks, London, London School of Economics, 1985.

Goodhart,Charles. “The Bank of England”, The New Palgrave Dictionary of Economics, 2a. ed., 2008.

Graf, Pablo. “Policy responses to the banking crisis in México”, BIS Policy Papers, 1999.

Gregorio, José de. “A veinte años de la autonomía del Banco Central de Chile”, Economía Chilena, vol. 12, núm. 3, diciembre de 2009.

Harvey, David. Breve historia del neoliberalismo, Madrid, Ediciones Akal, 2007.

Ibarra, David. El perfil de México en 1980, México, Siglo xxi, 1970.

International Monetary Fund. IMF-Archives, Emergency Executive Board Meeting, April 16, 1954.

_____. IMF-Archives, Western Hemisphere, Trends in Mexico’s International Position, December 20, 1954.

Issing, Otmar, “Is monetary targeting in Germany still adequate”, en Harrt Siebest (ed), Monetary Policy in an Integrated World Economy; Symposium, Tübingen, Nohr, 1995.

Izquierdo, Rafael. Política hacendaria del desarrollo estabilizador, 1958-1970, México, Fondo de Cultura Económica-El Colegio de México, 1995.

Johnson, Christopher. The Economy under Mrs. Thatcher, 1979-1990, London, Penguin Books, 1991.

Keefer, Philip y David Stasavage. “When does delegation improve credibility? Central Bank Independence and the separation of Powers”, Working Paper, WPS/98/18 Centre for the Study of African Economies, Oxford.

Kemmerer, Edwin W. The ABC of the Federal Reserve System, Princeton, Princeton University Press, 1920.

_____. Inflación y Revolución: la experiencia mexicana de 1912 a 1917. Edición facsímil, México, Banco de México, 2010.

Keynes, John M. A Treatise on Money, Londres, MacMillan, 1930.

Kock, Michiel H. de. Central Banking, México, Fondo de Cultura Económica, 1955.

Krauze, Enrique. “Cuatro estaciones de la cultura mexicana”, Caras de la historia, México, Cuadernos de Joaquín Mortiz, 1983.

_____. Caudillos culturales en la Revolución mexicana, México, Siglo Veintiuno, 1976.

_____ et al. Historia de la Revolución Mexicana, 1924-1928: La reconstrucción económica, México, El Colegio de México,1977.

Laffer, Arthur B. “The Ellipse: An Explication of the Laffer Curve in a Two-Factor Model”, The Financial Analyst’s Guide to Fiscal Policy, New York, Greenwood Press, 1986.

Laurens, Bernard J. and Rodolfo Maino, “China: Strengthening Monetary Policy Implementation”, in IMF Working Papers, WP/07/14.

Loaeza, Soledad. El Partido Acción Nacional: la larga marcha, 1939-1994, México, Fondo de Cultura Económica, 1999.

Madrid Hurtado, Miguel (de la). Cambio de rumbo: testimonio de una presidencia, 1982-1988, México, Fondo de Cultura Económica, 2004.

Mancera Aguayo, Miguel. “La experiencia mexicana sobre las entradas de capital”, El mercado de valores, marzo de 1992.

_____. “La política monetaria en México”, en Testimonios sobre la actuación de la banca central, Edición del 40 aniversario del Centro de Estudios Monetarios Latinoamericanos, México, 1993.

_____. Palabras del licenciado Miguel Mancera. Director General del Banco de México, en ocasión del Seminario Política Económica de México para 1994, organizado por la Asociación Nacional de Exalumnos del ITAM, México, mimeo, 1994.

Manero, Antonio. El Banco de México. Sus orígenes y fundación, Nueva York, F. Mayans, 1926.

_____. La reforma bancaria en la Revolución constitucionalista, México, s.e., 1958.

Martínez, Lorenza et al. “Consideraciones sobre la conducción de la política monetaria y el mecanismo de transmisión en México”, Documentos de investigación del Banco de México, 2001-02, marzo 2001.

Medina Peña, Luis. Hacia el nuevo Estado. México, 1920-1994, 2ª ed., México, Fondo de Cultura Económica, 1995.

Olea Sisniega, Miguel Ángel. “Las negociaciones de adhesión de México al GATT”, en Foro Internacional, México, vol. 30, núm. 3, enero-marzo, 1990.

Ortiz Mena, Antonio. “Desarrollo estabilizador: Una década de estrategia económica en México”, El Trimestre Económico, México, Fondo de Cultura Económica, 1970.

Ortiz, Guillermo. Discurso en Asociación de Banqueros de México, Memoria 63 Convención Bancaria. Banco de México, 2000.

Partido Acción Nacional. Programa Mínimo de Acción Política, folleto, 1949.

Peñaloza Webb, Tomás. “Apectos centrales de la banca mexicana, 1982-1990”, Banco Nacional de Comercio Exterior, vol. 42, núm. 2, mensual, febrero, 1992.

Pines, Burton Yale, “Lessons of Reaganomics”, Speech at the Chinese Association for International Understanding, Beijing, 20 de marzo,1983.

Polillo, Simone y Mauro Guillen. “Globalization pressures and the State. The worldwide spread of Central Bank Independence”, American Journal of Sociology, No. 110, 2005.

Reyna, José Luis y Olga Pellicer de Brody. El afianzamiento de la estabilidad política. Historia de la Revolución mexicana, periodo 1952-1960, vol. 22, México, El Colegio de México, 1978.

Reynolds, Clark. “Por qué el desarrollo estabilizador de México fue en realidad desestabilizador. Algunas consecuencias para el futuro”, El Trimestre Económico, núm. 250, abril-junio, 1996.

Romero Sotelo, María Eugenia (coord.). Historia del pensamiento económico en México. Problemas y tendencias (1821-2000), México, Trillas, 2005.

Rubin, Robert E.& Jacob Weisberg, In an Uncertain World, New York, Random House, 2004.

Saad-Filho, Alfredo y Deborah Johnston (eds.). Neoliberalism: A Critical Reader, Londres-Ann Arbor, Pluto Press, 2005.

Siklos, P.L. The Changing Face of Central Banking, Cambridge University Press, 2002.

Singleton, John. Central Banking in the Twentieth Century, Cambridge, Cambridge University Press, 2011.

_____. “The central bank and government partnership in Australia and New Zealand”, in G. Boyce, Mcintyre and S. Ville (eds.), How Organizations Connect: Investing in Communication, Melbourne, Melbourne University Press, 2006.

Smith, Vera C. The Rationale of Central Banking, Indianápolis, Liberty Fund, 1990.

Solís, Leopoldo. Economic Policy Reform in Mexico. A Case study for Developing Countries, Nueva York, Pergamon Press, 1981.

Sotelo, Ma. Eugenia (coord.) Historia del pensamiento económico en México. Problemas y tendencias (1982-2000), México, Trillas, 2005.

Tamagna, Frank. La banca central en América Latina, México, Centro de Estudios Monetarios Latinoamericanos, 1963.

Timberlake Jr. Richard H. The Origins of Central Banking in the United States, Cambridge, Harvard University Press, 1978.

Trejo, Francisco (comp.), El banco único de emisión y las demás instituciones de crédito en México, tomo I, México, s.e., 1992.

Villarreal, M. Ángeles. NAFTA and Mexican Economy, Congressional Research, 3 de junio de 2010.

Watson, Guy M. El Banco de Inglaterra, México, Centro de Estudios Monetarios Latinoamericanos, 1960.

Williamson, John. “No hay consenso. Reseña sobre el Consenso de Washington y sugerencias sobre los pasos a dar”, Finanzas y Desarrollo, septiembre de 2003.

Wionczek Miguel S. et al. La sociedad mexicana: presente y futuro, núm. 8, México, Fondo de Cultura Económica, 1974.

_____. et al. Crecimiento o desarrollo económico, vol. I, México, Sepsetentas, 1971.

Central Bank Autonomy in Mexico

A Historical Overview

The publication consists of 10 volumes:

1. The Central Banking System in the World
With Preface and Foreword

2. Mexican Central Bank Autonomy: Historical Background

3. Concurrent Visions

4. Echoes from Abroad

5. Institutional Autonomy

6. A Difficult Takeoff

7. Unprecedented Stability
With Sources Consulted

Table of Contents

- Unprecedented Stability

- Transition
- The Inflation Targeting Framework
- Toward a Future of Stability
- Endnotes

- Sources Consulted