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The Price of Violence: Interest Rates and Homicides in Mexico

Author

Listed:
  • Ethan B. Kapstein

    (Princeton University and Arizona State University)

  • Adityamohan Tantravahi

    (Princeton University)

Abstract

Among its many deleterious effects on social well-being, violent conflict can undermine the economies of the countries in which it is ongoing. From a macroeconomic perspective, internal conflict can lead to reduced investment, output, and growth. We show that it can also increase the borrowing costs on government-issued debt. Specifically, we examine the effects of crime-related homicides on the spread between the monetary policy rate and short-term Mexican treasury bills, called "CETES," during the period 2010-2017. We show that homicides have a statistically significant effect on the spread, and in drawing a connection between violence and interest rates, we make a novel contribution to the literature on the macroeconomic effects of conflict.

Suggested Citation

  • Ethan B. Kapstein & Adityamohan Tantravahi, 2021. "The Price of Violence: Interest Rates and Homicides in Mexico," Empirical Studies of Conflict Project (ESOC) Working Papers 26, Empirical Studies of Conflict Project.
    • Handle: RePEc:pri:esocpu:26
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    File URL: https://esoc.princeton.edu/WP26
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    More about this item

    Keywords

    Mexico; Conflict; Crime; Political Economy; Development; State Fragility;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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