The Price of Violence: Interest Rates and Homicides in Mexico

Ethan Kapstein and Adityamohan Tantravahi
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Ethan Kapstein: Princeton University and Arizona State University
Adityamohan Tantravahi: Princeton University

Empirical Studies of Conflict Project (ESOC) Working Papers from Empirical Studies of Conflict Project

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.

Keywords: Mexico; Conflict; Crime; Political Economy; Development; State Fragility (search for similar items in EconPapers)
JEL-codes: E52 F52 O54 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-isf and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pri:esocpu:26

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