IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v56y2024i34p4064-4085.html
   My bibliography  Save this article

The effects of central bank extraordinary measures on financial conditions: Evidence from Mexico

Author

Listed:
  • Carlos Alba
  • Gabriel Cuadra
  • Raul Ibarra

Abstract

This paper analyses the effects of the extraordinary measures implemented by the Central Bank of Mexico during the COVID-19 pandemic on financial conditions. For this purpose, we estimate a factor-augmented vector autoregressive model for the period 2001–2021. Based on this model, we construct a Financial Conditions Index, estimate the response of this indicator and its components from a shock to the outstanding amount of these measures, and conduct a counterfactual exercise to further analyse the effect of the aforementioned measures. The main results indicate that these extraordinary measures seem to have contributed to improve financial conditions. In particular, we find that if these measures had not been implemented, the sovereign risk premium, the 10-year government bond yield, the slope of the yield curve, and the long- and short-term yield spreads between Mexico and the US would have been higher by around 56, 31, 27, 37, and 49 basis points in December 2020, respectively. At the same time, the Mexican peso/US dollar exchange rate and its volatility would have been higher by 5 and 2 percentage points, respectively. In turn, the Mexican stock market index would have been lower by 10 percentage points.

Suggested Citation

  • Carlos Alba & Gabriel Cuadra & Raul Ibarra, 2024. "The effects of central bank extraordinary measures on financial conditions: Evidence from Mexico," Applied Economics, Taylor & Francis Journals, vol. 56(34), pages 4064-4085, July.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:34:p:4064-4085
    DOI: 10.1080/00036846.2023.2209311
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2023.2209311
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2023.2209311?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:56:y:2024:i:34:p:4064-4085. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.