European and Latin American Experiences
Edited by Noemi Levy and Etelberto Ortiz
Chapter 14: Pro-cyclical fiscal policy and the fiscal support of the Mexican monetary policy
AbstractIn the chapter, ‘Pro-cyclical fiscal policy and the fiscal support of the Mexican monetary policy,’ the author argues that monetary policy based on a system of fiscal and financial targets generates a contraction in capital spending and higher quasi-fiscal and financial costs. This is due to an oversupply of foreign exchange causing sterilized interventions in the foreign exchange market. As a result, it is noted that the behavior of the Bank of Mexico, in exercising its autonomy in pursuit of an inflation target, has an anti-democratic bias, not only due to the fiscal support it receives from the government, but also because it prevents the counter-cyclical exercise of fiscal policy.
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