Heterogeneity in the effects of monetary policy on sectoral labor market adjustment in Mexico

Abstract

This thesis analyzes the heterogeneity in the effects of monetary policy on sectoral labor adjustment in Mexico. Using survey-based data from the manufacturing, construction, trade, and services sectors, it examines how contractionary monetary shocks affect employment and real remunerations across economic subsectors. The empirical strategy is based on a high-dimensional Factor-Augmented Vector Autoregression (FAVAR) model estimated using a semi-Bayesian approach with Normal-Gamma priors for regularization, allowing the incorporation of a broad set of macroeconomic information while mitigating omitted variable and overparameterization problems. Monetary innovations are identified through Cholesky decomposition and sign restrictions. As a robustness exercise, intraday monetary policy surprises around Banco de México policy announcements are employed, providing a plausible source of exogenous monetary variation. The results reveal substantial heterogeneity in the transmission of monetary policy across subsectors. The strongest responses are concentrated in activities associated with durable goods, investment, and financing, whereas several service sectors exhibit more moderate effects. In addition, labor adjustment occurs primarily through employment, while real remunerations respond less strongly and more persistently, consistent with the presence of wage rigidities.