La Velocidad de Cambio en el desempleo

No sólo sorprende la eleva tasa de desempleo de Estados Unidos, sino la lentitud en su velocidad de ajuste --que aquí la defino como el promedio del cambio porcentual absoluto de los últimos doce meses en la tasa--.

El fenómeno ya occurrió con la "Jobless Recovery" del 2001-02 cuando el desempleo se estacionó en por arriba del cinco por ciento. Sin embargo, los pronosticadores estiman que la velocidad de ajuste, en esta ocasión, se quedará por un buen tiempo.

Apunte de la volatilidad financiera reciente

La volatilidad en los mercados financieros de los últimos días no sorprende. Después de que los organismos internacionales vaticinaron una recuperación firme durante este año, encabezada por Estados Unidos, información reciente y la declaración de la Reserva Federal de la semana pasado, hace tambalear las expectativas positivas. Afectando la percepción del grado de salud financiera de los gobiernos, empresas y familias que se esperaba una mayor mejoraría en el segundo semestre de este año.

Los indicadores muestran una posible desaceleración económica mundial. Después de un segundo trimestre positivo. El empleo privado de Estados Unidos no crece. Las medidas de austeridad fiscal europea están frenando su ya de por si anémico crecimiento económico. Y China, la locomotora económica dos, que depende mucho de la locomotora uno –Estados Unidos- muestra algunas señalas de enfriamiento. Haciendo un coctel perfecto de nerviosismo para los inversionistas y hacedores de política económica.

La recesión económica del 2009 fue consecuencia de la corrección en los niveles de consumo de las familias en Estados Unidos y otras naciones como respuesta a sus elevados niveles de endeudamiento, menores ingresos, y mayor incertidumbre en el mercado laboral que se agudizó a partir del tercer trimestre de 2008 con los problemas en el sistema financiero mundial. En respuesta, los principales gobiernos del mundo intervinieron para suavizar los costos económicos de la recesión al aumentar el gasto público, reducir los impuestos de manera temporal, y los bancos centrales instrumentando una política monetaria expansiva −bajando las tasas de interés de referencia y actuado como prestador de última instancia de intermediarios financieros con problemas de liquidez−. Incluso México tuvo la oportunidad de emprender una política fiscal expansiva para amortiguar las condiciones recesivas por primera vez en décadas.

Sin embargo, no se esperaba que actividad en la construcción privada, la inversión, y el consumo privado tuviera un período letárgico tan amplio. Por lo que a la luz de un período prolongado de bajo crecimiento económico en las naciones desarrolladas y con la imposibilidad de mantener el estímulo fiscal, el nerviosismo del mercado está bien fundamentado. Sin embargo, el efecto colateral que más nos interesa es el daño que puede sufrir la habilidad de la economía mexicana para crecer a través del canal de las exportaciones de México al mundo, particularmente al vecino del Norte, que podría causar una desaceleración que regionalmente impactaría los prospectos de crecimiento de los estados en la frontera norte, Aguascalientes, Jalisco y otras zonas exportadoras.

Por otro lado, otro indicador de inversión que refleja la habilidad de la economía mexicana para crecer en el mediano y largo plazo, las importaciones de bienes de capital, no se han recuperado como el resto de los componentes de las importaciones. Cifras del comercio exterior en Junio señalan que las importaciones de bienes de capital se redujeron en términos anuales 4.1 por ciento, contrario al aumento en las importaciones petroleras de 73 por ciento, bienes de consumo 35 por ciento, y bienes intermedios 43 por ciento. La importancia de los bienes de capital es que revela las decisiones del sector productivo de ampliación de capacidad instalada. Al incluir por ejemplo la importación de bienes de alta tecnología para el sector servicios. Por lo que ante el escenario de baja en el nivel de exportaciones, tampoco factores endógenos parecen compensar una desaceleración franca de la economía norteamericana.

En resumen, la volatilidad financiera es reflejo del aumento en la probabilidad de una desaceleración mayor en la economía mundial. Causando que la expectativa de flujo futuro de las utilidades de las empresas, su capacidad por honrar sus deudas, y el margen de maniobra financiera del gobierno se vea reducida. En términos técnicos, se observa un baja en el valor presente del flujo futuro de las empresas y aumento en el riesgo de impago de los emisores de deuda. Y como corolario, aumenta la posibilidad de un menor ritmo de crecimiento del país en los próximos meses.

Salvador Rodríguez, salva.rguez@gmail.com

Defining Business Cycle to Monetary Policy Purposes

Monetary policymakers try to identify turning points in the economy. The important of detect turning points in business cycles is related primarily to the goal of detect on time critical developments on the output gap –actual GDP minus Potential GDP. An expansionary cycle phase increases the risk of upward price pressures given the level production in the economy above its potential. On the other hand, a recessionary environment, with a output below of potential level, causes less probabilities of high inflation, allowing the possibility to ease credit conditions to stimulate aggregate demand, to induce the economy to get in track to its potential level.

However, business cycle and its components (mainly: turning points), are unobservable in the short run by many reasons, mainly: lag of publishing the data, data revisions, measurement errors, fails in the design of the collecting of data ad hoc of the economic phenomena, and other methodology problems.

According to the according to the classical definition business cycle is:

"Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions and revivals which merge in the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic; in duration business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar character with amplitudes approximately their own". (Burns and Mitchell, 1946, p. 3)

This definition justify why classically the business cycle is defined as two nevative variations of quarterly GDP. However, in United States, the NBER's Business Cycle Dating Committee employs other definition as the follow:

"A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion". (http://www.nber.org/cycles/dec2008.html).

This definition explicitly cite production, employment, income as key indicators. In fact labor market indicators was the main point to declare that recession in US started in December 2007:

“The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then”. Even when “The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3” (http://www.nber.org/cycles/dec2008.html)

We didn’t see a two consecutive decline on quarterly GDP as classical definition say. The criteria employs to judge the phases of the business cycles and turning points is discretional, according to the goals of the office, committee or analyst in charge. Labor market conditions is a indicator not necessarily coincident to the business cycle, has been usual “jobless recovery” phases throughout the world. However, given the human nature of economic activity, as an activity where we mostly gain from income by selling our work in a job, the NBER's Business Cycle Dating Committee put more emphasis on labor markets as their importance rather than its coincidence with the business cycle.

That is the reason why a central bank must carefully employ and design a different criteria to detect turning points and define economic phases, maybe a little bit more near to the classical definition of two consecutive of quarterly fall on GDP, a definition to infer timely about the output gap to take timely monetary actions. These means take employment as one important indicator but it would be not the most suitable indicator, as it does according to NBER committee, because it could not be adequately synchronized to the business cycle, sending miss-signs of the direction of the economy.

Mexican economy could face circumstances where the recovery gain momentum even when employment doesn’t show recovery (another cycle of jobless recovery as firms delay hiring process in early stages of economic recovery). That could affect the effective of monetary policy considering the lagged impact of monetary policy in the economy.

The Regional Banks in Mexico, an Opportunity to Explore

The old roles of banks are borrowing money from economic agents with money surplus and lend it to economic agents who need money; this is the fundamental formula. However, the operations of banks are based on other economic principles, as the follow four:

· Solve partially a selection adverse problem. Banks plays a key role because they are specialized on evaluation of borrowers’ risk and the risk assessments of money’s destination. These activities minimize the prices of credits by reducing asymmetric information between borrower and lender, making impersonal this kind of operations.

· Make possible risk diversification. By raising money from many sources and lending the money to many lenders, with many purposes, the banks allow reduce as much as possible business risks, leaving the system risk as low as it’s possible.

· Design financial products matching expectations of borrowers and lenders. By syndicating financial resources, banks provide resources to high scale products with adequate timing; it’s not easy find a unique investor whom borrow its money to the build a hotel with low interest rate, during 20 years. The banks solve this by raising money by many sources with different maturity.

However, there are always gaps to fill between supply and demand of financial resources; there are niches, and mainly, in developing countries as Mexico. There are not only financial intermediaries “too big to fail” (using a fashionable expression); but there are also banks “too big to fill all market niches”; that is the reason why credit unions and other “mini” banks are growing in Mexico. That is the reason, aside of regulations, incentives and other structural variables, that in United States work more than 8,000 banks. In this aspect is possible that Mexico’s economy is working with below of its potential financial services; losing a opportunity to promote economic development throughout the country. In 1978, Mexico had 134 financial intermediaries registered as Banks; currently, only 48 banks are working.

On the other hand, the demand for financial services to attend some niches in Mexico, had incentive the creation of Unions of Credit and other financial organizations. However, this kind of “mini” banks don’t enjoy the same facilities as big banks have, the same supervision, the level of access to other channels of financing, insurance against systematic risk, and they are not part of the inter-banking web of resources transferences. Those elevate all the kind of cost, increase risk, and reduce the ability of supervisors to see any risky development.

Banking system must find themselves the market niches to invest money and raise money. However, government agencies must be design careful the incentives toward the creation of regional banks to fill all the niches forgotten by the big banks.

The missed opportunity: 1994-95 Mexico’s Economic Crisis

Evaluate policies of the past is one of the daily economist’s activities. Now is time to rethink about what happened fifteen years ago during 1995-94 economic crisis in Mexico, and go further, what could had happened without that crisis?

Central Bank’s version of the causes of 1994-95 Recession:

The exchange rate regime, bands flotation, was adequate to promote low inflation, fostering economic growth given the changes in the economic structure, and gradually decrease of current account deficit. However, the strategy was abandoned by two shocks: a rise in interest rates in international markets and domestic political events that pull out foreign investment. Otherwise the current account deficit could be adjusted gradually without a sudden and sharp exchange rate adjustment (Summarized from 1994 annual report of Bank of Mexico).

But there were failures, mainly the explained implicitly in Bank of Mexico’s report, as follow:

"As a result (after the cited shocks that dried international reserves), in 19 December 1994 the Exchange Commission decided to abandon the exchange rate arrangements reported within the "El Pacto” Committee to move to a floating regime. The committee was a widespread opinion to the effect that before going to a flotation, it was desirable to try to stabilize the foreign exchange market by raising the roof of the banda of fluctuation. However, when this measure didn’t succeed, it was agreed to move to a floating regime with effect from December 22 [...], the Mexican makers suffered a depreciation of about 71 percent in 1994” (Bank of Mexico, Annual Report, 1994).

A problem of imperfect information without clear plan to try to avoid the main problem: the lack of financial resources in dollars. Causing a massive speculative attack against the Peso, resulting in the follow macroeconomic environment in 1995 relate to 1994:

Variable	1994	1995
GDP, annual variation	4.4	-6.2
Inflation, annual variation	6.9	34.9
Current account deficit, as percent of GDP	-6.4	-0.5
Exchange dollar rate, percent of appreciation	26.5	94.9
Exportations, annual percent variation	19.1	23.9

During the worst of the recession, exportations compensated the plummet of other economic activities, mainly those activities exposed to internal demand. The exportations led the recuperation during 1996-2000. Otherwise, in absent of any devaluation, maybe the sector could had been equally successful, the external demand was vigorous, even during the peak of peso’s value in 1994 when exports growth 19.1 percent, without pull out resources from other sectors. 1994 was a well-balanced year across off all economic activities, each activity grew: manufacture activity, 3.6 percent; construction, 6.4; energy, 7.7; commerce, 2.8; financial services, 5.2; communications and transport, 7.8 percent. 1993 mild recession was also well-balanced with low cyclical-price pressures.

However, after the crisis in 1996, that year was a recovery unbalanced year, the recovery came from exportations of manufacture goods that put the economy out of the recession. The bi-annual variation of GDP by economic activity in 1996 in relation to 1994 was as follow: manufacture activity grew 5.4 percent; energy, 6.9; transport and telecommunications, 2.7 percent; Construction fall, -15.9 percent; commerce, -11.5 percent; and financial service with a sluggish growth of 0.2 percent. An awful economic growth, even when the economy in general grew 5.1 percent in annualized terms that year; awful because its implications on the welfare of Mexicana population and continued some years later, in the period 1996-2000.

This unbalanced growth during 1996-2000 had deep implications in distribution income and asymmetric regional development.

• High inflation, as always does, affected the distribution of income across segments of population; mainly workers, given that wages typically have a lagged behavior behind prices, so real wages under high inflation always fall; during this period the average rate of prices growth was 17 percent, while wages grew 15 percent; behind prices and gains in productivity.

• Asymmetric development in incomes. During 1995-2000, the GDP in north border estates grew 42 percent, on the other hand no-border states grew 27 percent and three south border states, Chiapas, Campeche and Tabasco, grew 16 percent in five years. Those states more relate to internal markets (retail sales, home and infrastructure construction, and services –as education and health) with sectors highly depend on financial markets as retail, they kept a potential growth below north estates, creating high regional disparities; surely, there were more variables behind, but the recession was a key variable.

Certainly the exports helped the economy grew outstanding, however the vigorous growth in exportations was not entirely linked to peso’s depreciation; the most important factor was the NAFTA, the fiscal regime to exporters, and external demand. However, what the recession really did was what we know: Ruined the financial system cutting the opportunity of a well-balanced growth throughout economic sectors, regions and population. On the other hand, maybe the recession could also be responsible of other government positive initiatives as fiscal reform, financial system reform, and private pension reforms; but the causality is not clear.

In short, Salina’s administration played a key role in the evolution of the recession because its bet for exchange rate regime that didn´t work and that expose heavily to the financial system and the entire economy to a system risk: a exchange rate regime very vulnerable to any shocks. Another key variable was the soft financial regulations that begun in a irregular privatization process of bank entities; and the lack of a deep public debt market (it could be helpful had had a private pension system, for example, to deepen the financial market). However, Zedillo’s administration didn’t make a plan to face the real problem there; high current account deficit, risky profile of public debt, and international tight credit conditions.

The way how the economy would had responded without recession can be answered by further empirical research. As always this could be a possible exercise; there are many hypothesis to solve and stylized facts to describe, for example some exercises to do:

• Proof that NAFTA and gains in productivity were the main variables behind the exporter boom in Mexico, to support the argument that the economy would had done better even in the absent of any kind of depreciation; under an adequate transition between exchange rate regimes.

• Make a stress test ex post to financial intermediaries in Mexico to know if they could had managed better themselves under a satisfactory transition of exchange rate policy (with lower inflation and country risk premium in interest rates), and so if we would had seen better figures on internal credit.

• Make simulations on how could be respond the income distribution without high rates of inflation and with better balanced economic growth across economic sectors.

• Testing the degree of sensitivity of economic growth by regions to variables as financial development, domestic and international demand. This factor would had been important behind the regional divergence in wages, income, and development, through the period 1996-2002.

These exercises could be valuable because it must help us to clarify some economic events of the past, mainly recessive periods, and take into account what are the lessons we learned.

Bank of Mexico’s vision on 1994-95 and 2009 Economic Downturns

(complete english version soon)

The economic recession in the period 1994-95 was the most severe in the modern era of Mexico. The cause that started the recession was the sudden lack of liquidity to finance the external current account deficit which led to an abrupt change in the exchange rate regime from crawling bands to a floating exchange rate, causing a drop in GDP of 6.9 percent, a increase in prices by 51.9 percent and a rise in the dollar's exchange rate of 96 percent, among other consequences. The recession of 2009 is the most severe in twenty-first century, GDP contracted 8.2 percent in first quarter and the dollar appreciated 26 percent annually in May. This crisis is coming from abroad, affecting the Mexican economy through many channels: decline exports, tight credit conditions, and through affecting people expectations related to consumption and investment decisions.

To understand both recessions, have historical answers and pretend to get new research lines about business cycle in Mexico, is very important study the way how the central bank saw these periods. I share you a summary of anecdotic information released by the central bank in Annual Report 1994, and the inflation report, first quarter 2009. I offer a more wide vision on 1994-95 than 2009 contraction because we have more fresh information about the current recession.

Highlights on Bank of Mexico’s Annual report 1994:

Summary, 1994. The exchange rate regime, bands flotation, was adequate to promote low inflation, fostering economic growth in the context of changes in economic structure, and gradually decrease of current account deficit. However, the strategy was abandoned by two shocks: a rise in interest rates in international markets and domestic political events that drove them off foreign direct investment. Otherwise the current account deficit could be adjusted gradually without the need for a sudden and sharp exchange rate adjustment.

Synthesis:

“En 1994, […] eventos políticos y delictivos generaron un ambiente de gran incertidumbre que influyó adversamente en las expectativas de los agentes económicos del país y del exterior […] [L]a contracción de recursos financieros del exterior también jugó un papel muy importante en la determinación del desarrollo económico del país. Dicha contracción respondió, en buena medida, a los aumentos de las tasas de interés externas y a la recuperación económica de los países industrializados, que redundó en un aumento de su demanda de fondos prestables”.

“El déficit de la cuenta corriente de la balanza de pagos aumentó en 1994 […] el incremento del déficit […] es imputable […], a los siguientes factores: a la reactivación de la inversión privada como pública, y a una disminución del ahorro del sector público mayor que el aumento en el sector privado […] Con frecuencia se ha mencionado que el déficit de cuenta corriente y la apreciación del tipo de cambio real fueron las principales causantes de las devaluaciones de diciembre pasado. Esa tesis merece un análisis cuidadoso […] En la medida que la apreciación vaya acompañada de incrementos en la productividad de mano de obra, no se puede considerar que aquélla implique una pérdida de competitividad con el exterior”.

“[E]l nivel de reservas internacionales se mantuvo prácticamente estable en el período comprendido de finales de abril a mediados de noviembre de 1994. Este hecho es muy significativo; indica que sólo cuando se presentaron perturbaciones exógenas, el financiamiento de la cuenta corriente resultó insuficiente. Durante el resto del tiempo, los flujos netos de capital hacia México fueron de monto similar al déficit de cuenta corriente, por lo que la balanza de pagos global se mantuvo en equilibrio”.

“Sin embargo, nuevos acontecimientos desfavorables ocurridos a mediados de noviembre y a partir de la segunda decena de diciembre, produjeron una situación que a la postre fue imposible superar. Ello, en vista de la ocurrencia de los siguientes factores: a) agotamiento del margen para que el tipo de cambio pudiese ajustarse al alza dentro de la banda de flotación; b) sustancial reducción de las reservas internacionales; y c) tasas de interés reales a niveles que implicaban graves dificultades tanto para los intermediaros financieros como para los deudores. Estos factores, aunados a una renovada volatilidad en los mercados internacionales, […] provocaron un ataque especulativo de gran magnitud en contra de la moneda nacional. Un ataque que ya no pudo ser detenido mediante las medidas que hasta entonces habían sido eficaces”.

“En consecuencia, el 19 Diciembre de 1994 la Comisión de Cambios acordó abandonar el régimen cambiario comunicado en el seno del “Pacto” la decisión de pasar a un régimen de flotación. En dicho foro se encontró una opinión muy extendida en el sentido de que antes de ir a una flotación, era conveniente intentar la estabilización del mercado cambiario mediante la elevación del techo de la banda. Sin embargo, al no tener éxito esta medida, se acordó pasar a un régimen de flotación con efectos a partir del 22 de diciembre […] tomando como referencia el tipo de cambio intercambiario, el peos mexicano sufrió una depreciación de aproximadamente 71 por ciento en 1994”.

“Durante períodos prolongados el tipo de cambio tendió a mantenerse cerca del piso de la banda y las reservas llegaron el 15 de Febrero de 1994 a un máximo de 29,228 millones de dólares. […] En las condiciones descritas, el incremento del desliz parecía innecesario y de aprobarse hubiese resultado contraproducente. [Se] había comprobado que la conducta de los agentes económicos estaban influidas por la trayectoria anunciada del desliz del techo de la banda. Lo mismo puede decirse de los salarios. […] Como es obvio, esto habría resultado en costoso más elevados y más inflación. […] Los proponentes de las devaluaciones no siempre advierten que la eficacia de éstas para mejorar la competitividad de un país está condicionada a que los sueldos y salarios no suban, o, en todo caso, a que asciendan en menor proporción que el tipo de cambio. De no satisfacerse esta condición, las devaluaciones no tienes más consecuencia que provocar mayor inflación y el agravamiento de los problemas que ésta produce”.

“El régimen cambiario […] era congruente con una estrategia de mediano plazo tendiente a alcanzar bajos niveles de inflación, crecimiento económico rápido y sostenible, así como una reducción gradual del déficit de cuenta corriente de la balanza de pagos”.

Highlights on Bank of Mexico’s inflation report, first quarter 1994:

“La evolución de la actividad económica […]se enmarcó en un contexto […] caracterizado […] por un creciente deterioro en los niveles de demanda y […]por condiciones […] adversas de acceso al financiamiento externo en los mercados de capitales internacionales. Este entorno […]se vio reflejado en […] las cifras de demanda y de actividad productiva domésticas, las cuales sugieren que, en el trimestre que se reporta, la economía mexicana registró una caída considerable en sus niveles de actividad. Por un lado, la evolución de las exportaciones de bienes y servicios muestra que el deterioro de la demanda externa persistió […]. Por otro, se observó’ una transmisión más profunda y generalizada del choque externo a los niveles de gasto doméstico”.

The Geography of the Recession and the Imperfection of Short-Term Economic Analysis

Mexico lost 3.4 percent of its formal jobs in annualized rate in April 2009. However, employment had not a uniform behavior; Chihuahua, lost 14.0 percent; Baja California, 9.4 percent and Tamaulipas, 8.3 percent; all north border states. However, other states created jobs; Campeche, 4.1 percent; Chiapas, 4.0; Oaxaca, 3.7; and Veracruz, 3.7; all of them southern states.

The main reason behind this irregular behavior is not its geography per se but their economic structure (with variable geography being important). Remember, the state’s economic structure defines its business cycle responsiveness and how it reacts to economic shocks. In the present recession with a international shocks affecting through two transmission channels: fall on exportations and tight conditions on financial markets.

Let’s take a look over the four larger states with high employment swings to describe its structure and how they have reacted recently in the face of the current economic downturn, particularly: Chihuahua, Baja California, Veracruz and Campeche.

Contribution to its GDP by three sector: manufacture, mining and commerce

(Percent)

	Manufacture	Mining	Commercial Activity
Chihuahua	18.6	0.8	34.1
Baja California	18.9	0.1	25.3
Veracruz	16.0	1.1	19.6
Campeche	1.3	42.1	17.3

Source: INEGI at: www.inegi.org.mx

Clearly the exposition to the recession is larger in Chihuahua and Baja California because they have more participation in two sectors highly expose to international shocks; manufacture and commerce. The industry of boarders states is deeply concentrated in the production to consumer goods for exportation, therefore a suddenly fall in US consumption led a fall in manufacturers products (during May exportations fall 35 percent); and both states have higher participation in commercial activity, very sensible to border commerce, wages and credit conditions.

On the other hand, Veracruz and Campeche have lower participation in commercial activity and manufacture production. The economy of Campeche is largely determinate by mining, particularly oil extraction, a sector with sources of volatility determinate, in order, by: natural endowment, financial health in public budget, and oil prices. So this time with relatively stable oil production andincrease spending on oil extraction; this sector keep its peace, creating jobs and compensating the fall on other sectors.

In the case of Veracruz ,which despite having a smaller commercial sector it has industrial sector almost similar in size to the northern states. However, its industrial sector is very different from the northern states; Northern states produce more than 50 percent on higher value added goods such as computer equipment and other electronic goods, while Veracruz produces processed food by 50 percent; this industry traditionally more affected by supply disruptions than demand shocks.

These results brought some reflections about the short term economic analysis. Recently has been attractive to declare the supremacy of some ways of growth over others ways. Under the criteria of recent economic performance, France in Europe and China in Asia, are the winners; both countries are heavily regulates, with strong presence of the government, and both economies show better figures than US, Canada and Japan for instance . The losers are Mexico and Germany, respectively, countries highly dependent on exportations, whose have been working toward trade openness, less regulation, more competition, less unions, more flexibility, fiscal discipline, etc.

Now, is better be Veracruz than Aguascalientes, better be Oaxaca than Baja California. Have strong government than a weak one. Now government spends better than privates, and more important, government spends better private resources than private themselves. This is supported by short term economic analysis that enjoy Keynesians (“In the long run we are all dead”).

This discussion is very important under assumption that shocks with permanent effect of economic growth. This time this assumption is stronger than ever because lawmakers, policymakers, and all kid of adviser are questioning the “old way” of doing economics around the world and they are doing something about it. Fiscal deficits are in fashion. Industrial policy are more active than the previous decades; saving sectors and companies “engulfed” in flames. Increasing public debt –future tax - and forgetting the “old economic agenda”: fiscal discipline, quality education with educational vouchers, technological innovation with private resources through financial instruments as investment risk funds.

It’s very important the presentation of conjuncture reports as Bank of Mexico does. However, this report and other of this class, should be taken carefully and considering its main goal, in the case of Bank of Mexico, justify the monetary policy decisions, the economic context of these decisions, explains the causes of the trajectory of prices in the economy, and as result of its commitment in terms of accountability and as an operational objective through its effects on inflation expectations. It shouldn’t seen as tool to persuade those involved in modify the incentives in the economy, particularly those incentives created to affect negatively the economic performance as strong government presence on the economy, industrial policy or rules in executive pay.