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The Interest Rate-Exchange Rate Link in the Mexican Float

Author

Listed:
  • Carlos A. Ibarra

    (Departamento de Economía, Universidad de las Américas Puebla)

Abstract

This paper examines empirically the interest rate-exchange rate link in the context of the Mexican experience with a floating exchange regime. The impulse response function derived from an ECM estimated by GMM reveals a lasting positive effect of a currency depreciation on the peso-dollar interest rate differential. Some of the macroeconomic consequences from this pattern are discussed, together with a possible explanation based on the incorporation of the central bank reaction function into private expectations.

Suggested Citation

  • Carlos A. Ibarra, 2004. "The Interest Rate-Exchange Rate Link in the Mexican Float," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 5-28, January-J.
    • Handle: RePEc:emc:ecomex:v:13:y:2004:i:1:p:5-28
    as

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    File URL: http://www.economiamexicana.cide.edu/num_anteriores/XIII-1/CARLOS_A_IBARRA.pdf
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    References listed on IDEAS

    as
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