Interest Rates in Mexico: The Role of Exchange Rate Expectations and International Creditworthiness

Hoe Ee Khor and Liliana Rojas-Suarez

IMF Staff Papers, 1991, vol. 38, issue 4, 850-871

Abstract: The link is explored between interest rates on domestic financial assets in Mexico and expectations of exchange rate changes and perceptions about default risks contained in Mexico's external debt. Interest rate differentials between peso- and U.S. dollar-denominated assets are shown to have reflected concerns about the exchange rate policy during the period considered. The evidence also suggests that the interest rate on a U.S. dollardenominated Mexican domestic asset is linked to the yield implicit in the secondary market price for external debt issued by Mexico.

JEL-codes: C12 F31 F34 O54 (search for similar items in EconPapers)
Date: 1991
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