How Sensitive is the Exchange Rate to External and Internal Factors in Mexico? A Comparative Analysis with 27 Developed and Emerging Economies

Guillermo Benavides-Perales (), Isela-Elizabeth Téllez-León () and Francisco Venegas-Martínez
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Guillermo Benavides-Perales: Universidad del Valle de México, México
Isela-Elizabeth Téllez-León: Instituto Politécnico Nacional, México

Revista de Investigación en Ciencias Contables y Administrativas, 2020, vol. 6, issue 1, 4-18

Abstract: This paper studies to what extent the exchange rate depreciation is affected by external factors (aggregate risk) and internal factors (idiosyncratic risk) in Mexico by carrying out a comparative analysis with 27 developed and emerging economies. Methodology: An APT-type model is adapted to measure the sensitivity of the depreciation of the exchange rate to factors related to capital markets and exchange rate investment strategies through the estimation of the corresponding “betas”. Results: According to the obtained empirical results, the depreciation of the exchange rate, in general, has been relatively more sensitive to external factors related to movements in the stock market and speculation strategies in the foreign exchange market than idiosyncratic factors. The depreciation dynamics are qualitatively similar to both the overall average and the averages of the subsamples of emerging and developed economies. Finally, it is shown that Mexico is relatively more sensitive in terms of its currency depreciation if compared to other countries (higher betas in absolute values).

Keywords: Exchange rates; APT; emerging markets; developed economies; foreign exchange co-movements (search for similar items in EconPapers)
Date: 2020
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Journal Article: How Sensitive is the Exchange Rate to External and Internal Factors in Mexico? A Comparative Analysis with 27 Developed and Emerging Economies (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:msn:rijrnl:v:6:y:2020:i:1:p:4-18

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