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How Sensitive is the Exchange Rate to External and Internal Factors in Mexico? A Comparative Analysis with 27 Developed and Emerging Economies

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  • Guillermo Benavides-Perales

    (Universidad del Valle de México, México)

  • Isela-Elizabeth Téllez-León

    (Instituto Politécnico Nacional, México)

  • Francisco Venegas-Martínez

    (Instituto Politécnico Nacional, México)

Abstract

This paper studies to what extent the exchange rate depreciation is affected by external factors (aggregate risk) and internal factors (idiosyncratic risk) in Mexico by carrying out a comparative analysis with 27 developed and emerging economies. Methodology: An APT-type model is adapted to measure the sensitivity of the depreciation of the exchange rate to factors related to capital markets and exchange rate investment strategies through the estimation of the corresponding “betas”. Results: According to the obtained empirical results, the depreciation of the exchange rate, in general, has been relatively more sensitive to external factors related to movements in the stock market and speculation strategies in the foreign exchange market than idiosyncratic factors. The depreciation dynamics are qualitatively similar to both the overall average and the averages of the subsamples of emerging and developed economies. Finally, it is shown that Mexico is relatively more sensitive in terms of its currency depreciation if compared to other countries (higher betas in absolute values).

Suggested Citation

  • Guillermo Benavides-Perales & Isela-Elizabeth Téllez-León & Francisco Venegas-Martínez, 2020. "How Sensitive is the Exchange Rate to External and Internal Factors in Mexico? A Comparative Analysis with 27 Developed and Emerging Economies," Revista de Investigación en Ciencias Contables y Administrativas, Universidad Michoacana de San Nicolás de Hidalgo, Facultad de Contaduría y Ciencias Administrativas, vol. 6(1), pages 4-18, December.
    • Handle: RePEc:msn:rijrnl:v:6:y:2020:i:1:p:4-18
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    1. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2018. "Exchange Rate Misalignment, Capital Flows, and Optimal Monetary Policy Trade-offs," CEPR Discussion Papers 12850, C.E.P.R. Discussion Papers.
    2. Annina Kaltenbrunner, 2018. "Financialised internationalisation and structural hierarchies: a mixed-method study of exchange rate determination in emerging economies," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 42(5), pages 1315-1341.
    3. Bernardo González-Aréchiga & Jaime Díaz Tinoco & Francisco Venegas-Martínez, 2001. "Riesgo cambiario, brecha de madurez y cobertura con futuros: análisis local y de valor en riesgo," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(2), pages 259-290, July-Dece.
    4. Guillermo Benavides-Perales & Isela-Elizabeth Téllez-León & Francisco Venegas-Martínez, 2020. "How Sensitive is the Exchange Rate to External and Internal Factors in Mexico? A Comparative Analysis with 27 Developed and Emerging Economies," Revista de Investigación en Ciencias Contables y Administrativas, Universidad Michoacana de San Nicolás de Hidalgo, Facultad de Contaduría y Ciencias Administrativas, vol. 6(1), pages 4-18, December.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    1. Guillermo Benavides-Perales & Isela-Elizabeth Téllez-León & Francisco Venegas-Martínez, 2020. "How Sensitive is the Exchange Rate to External and Internal Factors in Mexico? A Comparative Analysis with 27 Developed and Emerging Economies," Revista de Investigación en Ciencias Contables y Administrativas, Universidad Michoacana de San Nicolás de Hidalgo, Facultad de Contaduría y Ciencias Administrativas, vol. 6(1), pages 4-18, December.

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