Monetary policy, production and manufacturing employment in Mexico
Abstract
The aim of this investigation is to evaluate the effect of an unexpected monetary policy change on the dynamic path followed by the production and employment in manufacturing in Mexico. The Blanchard and Quah (1989) decomposition is applied under a structural autoregressive vector model with long run restrictions. Results suggests monetary shocks induce transitory effects on production and employment in manufacturing, and would induce a dynamic path in manufacturing similar to that followed by the national economic activity, though its effect is modest in comparison to supply and demand shocks. The trajectory followed by the interest rate suggest it clearly functions as a stabilizing factor of the manufacturing
business cycle.
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