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Western Hemisphere > Mexico

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Cover IMF Working Papers
Minimum Wages and the Informality Constraint
Nils H. Lehr
,
Johanna Schauer
, and
Hugo Tuesta
How does informality shape the impact of minimum wage policy? We study this question using evidence from Mexico’s 145% real increase in the minimum wage since 2016, together with a general equilibrium model featuring endogenous informality and household heterogeneity. Reduced-form estimates of the implemented increases indicate limited effects on employment and formalization, alongside modest wage gains at the bottom of the formal wage distribution that arguably reflect incomplete enforcement. The calibrated model reproduces these patterns but predicts that, under full enforcement, higher wage floors generate nonlinear effects: the share of firms reallocating toward informality rises sharply, lowering productivity and aggregate welfare. These losses fall disproportionately on low-skill households, who bear the brunt of the reduction in transfers caused by lower tax revenue yet, as predominantly informal workers, gain little directly from the minimum wage. The minimum wage’s effectiveness as a redistributive tool is therefore limited.
Keywords:
Minimum wage; informality; labor markets; welfare; IMF working papers; informality Constraint; household heterogeneity; minimum wage policy; endogenous informality; Minimum wages; Wages; Employment; Labor supply; South America; Central America; Caribbean
Cover Departmental Papers
Anchoring Inflation Expectations: Evidence from Latin America during the Post-COVID Stress Test
Philip Barrett
,
Federico Duenas
,
Christopher Evans
,
Eric Huang
,
Gonzalo Huertas
, and
Tannous Kass-Hanna
This paper examines the anchoring of long-run inflation expectations in Latin America during the post-COVID inflation surge. Monetary frameworks—many established around the turn of the century—generally performed well, with long-run beliefs moving little despite large shocks. Over the last 20 years, both tails of the expectations distribution have converged toward targets, though an upside skew persists. Cross-sectional patterns are consistent with personally credible policymakers operating within frameworks subject to institutional constraints. Using new data on anchoring, we show that stronger anchoring mitigates the inflationary impact of external shocks, while the effects on monetary transmission are mixed but consistent with theory. We also document that credibility evolves asymmetrically: hawkish monetary policy surprises deliver modest improvements, whereas dovish shocks erode anchoring more rapidly. Narrative case studies illustrate how steps toward inflation targeting can succeed in anchoring expectations even in crises, provided institutional and political support remains strong.
Keywords:
Inflation; Expectations; Anchoring; Latin America; Beliefs; Forecasts; Monetary Policy; inflation expectation; Policy conduct; inflation in Latin America; IMF Library; measurement composition of inflation; Inflation targeting; Exchange rates; Consumer price indexes; Exchange rate arrangements; Caribbean; South America; Central America; Western Hemisphere
Cover IMF Working Papers
Capital Holdup, Job Creation, and Skill Supply under Search Frictions
Shisham Adhikari
and
Si Guo
There has been renewed interest in revitalizing manufacturing, yet policy often confronts a circular challenge: firms hesitate to expand because they cannot reliably find suitably skilled workers (e.g., STEM-trained), while workers are reluctant to acquire those skills when jobs remain limited. This raises a policy question: intervene at the firm margin or the worker margin, or both? We study this question by extending Acemoglu and Shimer (1999) to a two-sector open-economy. The key friction is capital holdup: firms invest upfront to create jobs, but sunk investment weakens their wage bargaining positions, discouraging investment ex-ante. Because manufacturing is more capital intensive, holdup is more severe, leaving manufacturing employment inefficiently low. In the calibrated model, this inefficiency-induced industrial employment shortfall is about 1 percent of total employment – roughly one-fifth of LAC-East Asia gap. When Hosios condition holds, the optimal policy can be solely on the firm side: an investment subsidy financed by an employment tax on firms. When Hosios condition fails, an additional wedge distorting workers’ sectoral choices emerges, and targeted training subsidies become welfare-improving.
Keywords:
Search and matching; employment; IMF working papers; policy question; capital holdup; investment subsidy; Hosios condition; Labor markets; Manufacturing; Unemployment; East Asia; Asia and Pacific; employment share; open economy; sectoral choice; lump sum; STEM share; Job creation; Labor market frictions; South America; Central America; Caribbean
Cover IMF Working Papers
Fiscal Decentralization and Cyclicality in Latin America: Evidence from a New Regional Budget Database
Davi Bhering Buarque de Gusmao
,
Hector Perez-Saiz
,
Joe Ue
, and
Valeria Visser
Using a newly constructed database of highly granular regional-level budgets, this paper documents the growing relevance of regional governments in Latin America over the past three decades and evaluates the implications for fiscal cyclicality. We find that regional governments exhibit lower revenue elasticity to national GDP than central governments, primarily due to the limited cyclicality of transfers. On the expenditure side, while overall elasticity is comparable to central governments, fiscal adjustment occurs through capital expenditures. We also show that transfers appear to operate primarily as redistribution mechanisms across regions rather than as instruments to offset differences in tax capacity.
Keywords:
Decentralization; budget; Latin America; transfers; IMF working papers; expenditure elasticity; Subnational database; GDP series; Subnational government; Fiscal federalism; Government finance statistics; Current spending; Caribbean; Central America; South America; Global
Cover IMF Working Papers
When Forecasts Meet Reality: Assessing Climate Damage Functions
Johannes Emmerling
,
Paul Waidelich
,
Matthieu Bellon
, and
Emanuele Massetti
This paper assesses estimates of the economic impacts of climate change by leveraging the IMF’s World Economic Outlook (WEO) forecasts (1990-2023) as climate-free counterfactuals. Placebo tests confirm WEO forecasts do not capture climate effects. By adding climate damage estimates to forecasts and comparing with actual GDP growth, we find climate damage functions explain only a small share of forecast errors—reducing mean absolute errors by up to 0.4 percentage points (about 6% of the forecast error). The most severe damage functions predict contractions in some countries that are inconsistent with observed growth, suggesting overstated near-term climate impacts.
Keywords:
climate impacts; validation; forecasts; damage function; IMF working papers; Weo forecast; placebo test; IMF's World Economic Outlook; climate impact; Climate change; Natural disasters; Population growth; Economic recession; Global; Europe; Northern Europe; Southern Europe; Africa
Cover IMF Working Papers
Growth-Indexed Bonds and Debt Distribution: Too Little, Too Costly?
Julien Acalin
Sovereign state-contingent bonds have rarely been issued despite their theoretical debt stabilization properties. This paper revisits this puzzle by analyzing when growth-indexed bonds are too limited in scale, and when they are too costly, to materially improve debt sustainability. The results show that the benefits of indexation are highly heterogeneous across countries. Under the realistic assumption that 20 percent of the debt stock is indexed, reductions in the upper tail of the debt distribution are modest. Full indexation yields more substantial improvements, especially when combined with an optimal loading on growth. Yet a sustained premium of 100 basis points would still offset most of the gains for many countries. These findings suggest that the debt-stabilization properties of growth-indexed bonds would be limited, unless a large-scale and coordinated effort achieves both broad adoption and low issuance premia.
Keywords:
Growth-indexed bonds; Debt sustainability; Monte Carlo simulations; debt-stabilization properties; growth-indexed bond; IMF working papers; debt distribution; sovereign state; Inflation-indexed bonds; Bonds; Fiscal stance; Output gap; Global
Cover IMF Working Papers
Capital Flows to Emerging Markets: Disentangling Quantities from Prices
Andres Fernandez
and
Alejandro Vicondoa
We study the joint dynamics in the volume and prices of capital fows to emerging market economies (EMEs). A dynamic factor model augmented with sign and zero restrictions allows us to identify demand/supply shocks of idiosyncratic/common nature. While common credit supply shocks are the main driver of prices, idiosyncratic credit demand and supply shocks account for most of the variation in quantities. A structural multicountry SOE/RBC model is calibrated to EMEs data to further shed light on the main transmission channels. Augmented with correlated productivity and interest rate shocks, the model matches the comovement between prices and quantities as well as business cycle moments. Common credit demand drivers, captured as correlated TFP shocks, account for around half of the observed comovement in quantities but they are not a signicant driver of price comovement. Fundamentals matter signicantly more for capital flows than for country spreads, which are driven by a sizeable global financial cycle.
Keywords:
capital flows; sovereign spread; small open economy; credit supply; credit demand; external factors.; capital flow; flows to EME; EMES data; share of variance; fows to emerging market economies; Credit; Capital inflows; Supply shocks; Emerging and frontier financial markets; Global; Africa
Cover IMF Working Papers
Explaining Latin America’s Decreasing Skilled Wage Premium
Alberto Behar
Skilled wage premia in Latin American countries have continued declining, albeit more slowly and unevenly. Is the decline driven by demand or supply? This paper proposes a novel adaptation to the demand-supply decomposition framework by incorporating directed technical change (DTC), specifically  supply-induced skill-biased technical change that acts to increase the wage premium. DTC counters the traditional substitution effect through which higher education wage attainment reduces the skill premium. Therefore, DTC makes adjusted inferred demand changes less skill biased than the standard framework’s traditional inferred demand changes. We apply the framework to ten Latin American countries over three periods, namely the length of the sample, the period between maximum wage premia and 2015, and since 2015. In our baseline results, DTC is quantitatively significant while the substitution effects remain important. Traditional demand shifts were skill biased over the length of the sample including since 2015 but our novel adjusted demand shifts were skill neutral. During the period between maximum premia and 2015, unadjusted demand shifts were skill-neutral and adjusted demand shifts favored unskilled workers. Equivalently, sizeable DTC effects imply wages would have fallen significantly faster in the absence of DTC. For an alternative elasticity of 1.25, DTC effects are smaller, supply effects are bigger, and adjustments to demand effects are smaller. For alternative supply measures, the results are relatively robust.
Keywords:
Skill-biased technical change; directed technical change; elasticity of substitution; schooling premium; wage premium; wage inequality.; demand shift; IMF working papers; wage premia; wage inequality; Wages; Wage adjustments; Demand elasticity; Skilled labor; South America; Central America; Caribbean; Global
Cover IMF Working Papers
Still Packing a Punch: Monetary Policy Transmission in a New Cross-Country High-Frequency Dataset
Ece Ozge Emeksiz
,
Güneş Kamber
,
Julia Otten
, and
Gurnain Kaur Pasricha
This paper assesses the transmission of monetary policy using a new state-of-the-art intra-day dataset of monetary policy shocks for 16 advanced economies and emerging markets, the most comprehensive cross-country coverage to date. Using 30-minute windows around policy announcements, we construct target and path factor shocks for a broad sample of countries and assess their transmission to government bond yields, stock prices, and exchange rates. High-frequency identification improves the significance of estimated responses relative to lower-frequency intraday or daily data. Both target and path surprises generate large and consistent effects across asset classes. We find limited evidence of central bank information effects, confirming the validity of high-frequency methods. Post-COVID-19, transmission to yields and equity prices remains stable, but exchange rate responses weaken—likely due to synchronized monetary tightening across countries. The findings underscore the value of high-frequency data for robust identification and cross-country analysis of monetary policy transmission.
Keywords:
Monetary Policy; High-Frequency Identification; Asset Prices; Yield Curve; Central Bank Communication; Emerging Markets; Advanced Economies; Quantitative Easing; Post-COVID-19 Inflation; Financial Market Response; monetary policy transmission; monetary policy shock; monetary policy surprise; IMF working papers; Exchange rates; Bond yields; Stocks; Global
Cover Monetary and Financial Statistics Manual and Compilation Guide
Monetary and Financial Statistics Manual and Compilation Guide
Jose M Cartas
and
Artak Harutyunyan

Abstract

This edition of Monetary and Financial Statistics Manual and Compilation Guide (Manual) updates and merges into one volume methodological and practical aspects of the compilation process of monetary statistics. The Manual is aimed at compilers and users of monetary data, offering guidance for the collection and analytical presentation of monetary statistics. The Manual includes standardized report forms, providing countries with a tool for compiling and reporting harmonized data for the central bank, other depository corporations, and other financial corporations.

Keywords:
M&G; financial instrument; balance sheet
Publication Date:
17 Dec 2025