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Pension Reform and Financial Markets in Mexico: An Econometric Analysis

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  • Gonçola Monteiro
  • Cecilia Posadas Pérez

Abstract

In this paper we analyse the implications for the Mexican financial system of substituting the Pay as you go pension system by a private Fully Funded scheme. With that aim, we begin by applying the Standard ADF test, in order to test each variable for the presence of a unit root relation. This test are required to validate the use of the cointegration technique of the Engle-Granger two-steps cointegration methodology, which has the advantage of distinguish a long-term OLS regression and an Error Correction Model for the short-term dynamics. We found that higher pension assets are associated in the long-run with financial savings, which is consistent with the fact that pension fund may act as a institutional investors managing the increased personal savings. With respect to the banking industry, a negative long-run relationship was found. This negative sign can be explained by the declining trend on the credit provided from commercial banks to the private sector and the rise in importance of other financial intermediaries

Suggested Citation

  • Gonçola Monteiro & Cecilia Posadas Pérez, 2006. "Pension Reform and Financial Markets in Mexico: An Econometric Analysis," Discussion Papers 06/25, Department of Economics, University of York, revised Mar 2007.
    • Handle: RePEc:yor:yorken:06/25
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    1. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    2. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
    3. Corsetti, Giancarlo & Schmidt-Hebbel, Klaus, 1995. "Pension reform and growth," Policy Research Working Paper Series 1471, The World Bank.
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