Monetary policy rate in Mexico due to the effects of Covid-19

The economic crisis feeded by Covid-19 has produced supply and demand shocks that affect the potential product and consumer preferences, an impact that suggests that the neutral real interest rate was modified and, therefore, the real interest rate should be adjusted so as not to generate a deeper economic contraction in Mexico. We estimate the value of the neutral rate using the Laubach and Williams method, based on the Kalman filter, and confirm the results with a cointegrated vector of autoregressions (CVAR) model. The results show that the neutral real rate, theoretically consistent with the full employment rate and the inflation target in Mexico, is reduced to 0.1 % and the nominal to 3.1 %. The empirical determination of the neutral rate based on two different methods for Mexico and its use to approximate how expansive the monetary policy should be in Mexico in the COVID stage. The results suggests the existence of enough room for an expansionary monetary policy that allows facing the crisis and boost economic activity for at least three years. © 2020 Instituto Mexicano de Ejecutivos de Finanzas. All rights reserved.

Impact of the COVID-19 crisis on income distribution in Mexico City

The spread of the SARS-CoV-2 virus triggers a sudden reduction in labor supply and demand. The workers' salary is reduced in the sectors which are highly labor intensive in Mexico City. This will generate negative changes in the income distribution. To approximate the effect of the COVID-19 crisis on income distribution, we propose a simulation using an income equation estimated with a pseudo-panel and data from the Encuesta Nacional de Ocupación y Empleo (ENOE). Our findings suggest that the sector most affected, in terms of income distribution by the health emergency, would be the service sector;while the least affected would be the construction sector. However, in all sectors, the cohorts that are most sensitive to the economic shock, and that would fall by one decile in the income distribution, are the individuals of the generations born between 1951 and 1985. © 2020 Universidad Nacional Autonoma de Mexico. All rights reserved.