Abstract
During the last years, Mexico experienced several of economic instabilities attributed to shocks of external and internal character. The intention of this paper is to examine the reaction of the Mexican Central Bank (Banxico) to such disturbances. The empirical study uses a modified version of the monetary model of Exchange Market Pressure (EMP) developed by Girton and Roper (1977). The main theoretical proposal is that any excess of supply or demand of money will be eliminated by variations in the exchange rate, by losses or gains of international reserves, or, in the case of a administered flotation system, by a combination of both. In conclusion, the emphasis in the use of the variations of the international reserves instead of the movement of exchange rate to mitigate such pressures of the currency market on the part of Banxico has been a common practice, due to financial sector little developed.
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