A Divisia Measure of the Money Supply for Mexico

Abstract

We produce the first measure of Divisia money for Mexico. Various structural VAR identifications with Divisia M4 as an indicator of monetary policy yield responses of production and prices that are in every case at least as sensible as—and generally offer an improvement over—their counterpart specifications with a short‐term offer rate as the indicator. Importantly, we find that our Divisia specifications do not require expanding the model's information set with commodity prices or the real exchange rate for a resolution of the price puzzle. We reach similar conclusions for Mexico to those Keating et al. (2019) arrive at for the U.S. economy.