Oil-dependent revenues and macroeconomic stability under fiscal and monetary rules: an analysis for Mexico

Available from: 
October 2013
Paper author(s): 
Ana María Aguilar (Banco de México)
Macroeconomics - Economic growth - Monetary Policy
Fiscal Policy - Public and Welfare Economics

In this paper we develop a small open economy macroeconomic model, and estimate it for Mexico. We incorporate the e¤ect of oil prices on public …nances. Assuming monetary policy follows an optimal policy rule, we evaluate the impact of two di¤erent …scal policy rules: a balanced budget rule or a structural-balance rule on macroeconomic stability. We …nd that when the economy faces in‡ation or consumption shocks, both rules generate almost the same e¤ect. However, when oil price shocks occur, higher macroeconomic stability is achieved and the monetary authority reacts less aggressively under the structural balance-rule. These results are even more relevant with the recent proposals to ‡exibilize the energy pricing policy in Mexico.


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Research section: 
Lacea 2013 annual meeting
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