The Interest Rate-Exchange Rate Link in the Mexican Float

Carlos A. Ibarra ()
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Carlos A. Ibarra: Departamento de Economía, Universidad de las Américas Puebla

Economía Mexicana NUEVA ÉPOCA, 2004, vol. XIII, issue 1, 5-28

Abstract: This paper examines empirically the interest rate-exchange rate link in the context of the Mexican experience with a floating exchange regime. The impulse response function derived from an ECM estimated by GMM reveals a lasting positive effect of a currency depreciation on the peso-dollar interest rate differential. Some of the macroeconomic consequences from this pattern are discussed, together with a possible explanation based on the incorporation of the central bank reaction function into private expectations.

Keywords: interest rate-exchange rate link; floating exchange rate regimes (search for similar items in EconPapers)
Date: 2004
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