Mexico | Considerations on the transmission lag of monetary policy and other macro shocks

Summary

The transmission lag of monetary policy to the price level is five and two quarters for the US and Mexican economies, respectively. A surprise of 50 basis points in the reference rate would reduce the price level by 0.54% and 0.14% in the US and Mexico, respectively.

Key points

• Key points:
• Nevertheless, the shocks or monetary policy surprises explain a relatively small variation in the GDP, prices and monetary policy rate variables
• In both economies supply shocks seem to have a permanent effect over GDP as opposed to demand shocks
• In the long-run the GDP of both the US and Mexico seems to be driven mainly by supply shocks
• The central banks of both economies do not seem to react to supply shocks

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