Critic to: The inflation.

The monetary policy

and economical growth in Mexico. The
reverse causality, 1970-2009.
Eduardo Loria(Facultad de Economía de la Universidad Autónoma de México, Ciudad de
México, México), Jorge Ramírez(Facultad de Economía, Universidad Autónoma del Estado de
México, Toluca, México)

Written by: Martha Edith Hernández López

06/04/2019

2400 × 1500

Master in Business Administration _MK

Enrollment number: 108392

Subject: Organizational Economics

Professor: Dr. Luz Adriana Rivera Blas

Term: 01-19

As it is known the economic life of a country and what characterizes it, depends largely on the

economic system in which macroeconomic policies are handled. Economic systems are classified
according to the participation that the State has in the market of a country. In Mexico we have a

mixed economic system, involving both the state (government) and private companies in the

economy.

In this system the basic rules of the market are accepted, but it relies on the effectiveness of

selective state intervention, and it is considered necessary to correct some imbalances and foster

the economic well-being. The governmental policies can be applied to control inflation and

unemployment (phenomena of the system and key macroeconomic indicators) are: Fiscal Policy,

Trade Policy Exchange, Rate Policy and Monetary Policy. This last one is the responsible for the

article which I will start to criticize, based on these basic principles.

Monetary policy in our country is carried out by our central banking, which in this case is

the Bank of Mexico and this can be divided into two types; Expansive or restrictive. Expansionary

policy is characterized by the increase of working capital or monetary offering due to activate the

market for goods and services and potentiate creation of jobs, thanks to the derived from the growth

in demand in the goods market, it is affected in the same direction to the market demand factors,

including work (employment). On the other hand a restrictive policy is essentially the decrease in

working capital in order to control price inflation in the market for goods and services and avoid

shortages of products, but at the same time, this implies a decrease in demand for goods in the

market, as I have already mentioned,

So far everything would seem extremely easy for the control and management of these phenomena

by the state, but if we include other variables such as the exchange rate and its effects on the balance

of payments, then the effects of their application are no longer clear, what prevents to measure in

short-term the efficiency in the use of any type of monetary policy either expansive or restrictive,

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having in this case the chance of deteriorate the phenomenon to control and cause the opposite

effect on the life of a country.

Hoping to make more effective the implementation of macroeconomic policies and reach

a sustainable growth, that is why the autonomy of our Central Bank is sought and hailed as one

of the best monetary policies. In Mexico since 1994 the autonomy of the Central Bank is being

effective and its sole mandate has been fighting inflation, an error in my point of view.

The economic theory in Mexico 1970-2008 had its success in reducing inflation, but only

in some moments. Since 1994, the Central Bank has had as main objective to fight inflation, which

has slowed and reduced the growth in Mexico.

As this article mentions monetary policy of a country it can not focus on a single goal, in

fact I can add that Mexico needs a monetary policy with clear objectives of growth, with an

acceptable and controlled inflation and unemployment. Economic growth can be translated into an

increase in the exchange rate which allows us to increase imports of goods at a lower cost, making

us more productive in a long-term period, adjusting prices that will control inflation.

Now we know that a reduction of interest rates (as part of an expansionary monetary policy)

can result in a reduction of financial costs and payment services debt service, impacting the price

of the final products. Controlling inflation. At this point I can say that the theory which states the

growth and wages are inflationary, this is not entirely true.

Our country in the period (1979-2009) has handled its policies with inflation control

purposes, but consequently has reduced economic growth. We can see that inflation is not only a

monetary phenomenon but shares a currency dye due to the characteristics of the goods we import

(intermediate), which impacts the productivity and price of the final goods in the market.

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I can conclude that the Central Bank should opt for multiple objectives and macro-control policies

must consider as a priority economic objective the economical growth. Regardless it has to be paid

with moderate inflation and unemployment, because in the end both are economic phenomena that

can not be eliminated in a capitalist economic system. As it is shown in the curve of Philips.1

Reference:
Ferrari, FC (2019). Phillips curve. Retrieved from economipedia: https://economipedia.com/definiciones/curva-de-phillips.html

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Ferrari, FC (2019). Phillips curve. Retrieved from economipedia: https://economipedia.com/definiciones/curva-de-phillips.html