The tale of three amigos: Remittances, exchange rates, and money demand in Mexico

C Vargas‐Silva - Review of Development Economics, 2009 - Wiley Online Library
Review of Development Economics, 2009Wiley Online Library
The author analyzes the relationship between remittances, exchange rates, and money
demand in Mexico. He finds that shocks to remittances have a positive impact on domestic
money demand. The results also suggest the existence of a bi‐directional relationship
between remittances and the exchange rate. Furthermore, positive shocks to remittances are
found to have a negative impact on Mexico's real exchange rate. This indicates that
remittances appreciate the Mexican peso and therefore may impact on the competitiveness …
Abstract
The author analyzes the relationship between remittances, exchange rates, and money demand in Mexico. He finds that shocks to remittances have a positive impact on domestic money demand. The results also suggest the existence of a bi‐directional relationship between remittances and the exchange rate. Furthermore, positive shocks to remittances are found to have a negative impact on Mexico's real exchange rate. This indicates that remittances appreciate the Mexican peso and therefore may impact on the competitiveness of the tradable sector negatively.
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