A case study approach is used to assess the multi-pronged policy response of seven small financially open economies with flexible exchange rate regimes to external shocks following the global financial crisis. FX intervention was frequently used— including during outflow episodes to prevent disorderly depreciation and preserve financial stability. Monetary policy often considered both financial and external stability. Capital flow management measures were sometimes calibrated symmetrically over the cycle while macroprudential measures were mostly deployed during inflow episodes. Assessment of the macroeconomic conditions paints an inconclusive picture on the benefits or costs of such policies, suggesting the need for further analysis.
International Monetary Fund. Western Hemisphere Dept.
Covid-19 has exacted a tragic human, social, and economic toll on Mexico. Over 85,000 lives were lost; unofficial estimates are notably higher. Of 12 million workers that lost their jobs, most of whom came from the informal sector with a limited safety net, over 4 million remain out of the workforce. The working poverty rate jumped to 48 percent. After a historic drop in output, there has been a trade-led bounce in manufacturing. But domestic demand is weak, as is services activity that employs most of the workforce. Staff projects the economy to shrink by 9 percent this year, followed by a gradual recovery. It could take years for employment and incomes to return to pre-crisis levels, compounding the long-standing challenge of achieving strong and inclusive growth.