The international financial crisis of 2008 and some of its economic effects on Mexico

The international financial crisis of 2008 due mainly to the subprime mortgage deriva¬tives crisis in the United States but with world economic effects, had a significant negative repercussion on the Mexican economy mostly trough the real channel of the Mexican ex¬ports, which was reflected upon manufacturing and industrial production, particularly in the Northern states of Mexico. Granger causality tests show that the industrial production of the United States causes Mexican manufacturing production. A VAR econometric mo¬del which has U.S. industrial production as an exogenous variable indicates that the real exchange rate has a negative short-run effect on Mexican manufacturing production, and that fiscal and monetary policies have a small effect on manufacturing output. Moreover, it shows that these policies have been pro-cyclical in the past. To counter negative effects from international economic crises Mexico needs to develop a stronger domestic market and be able to forge counter cyclical monetary and fiscal policies.