Exchange rate regime, world oil prices and the Mexican economy

Merve Osmanbeyoglu (), Nukhet Dogan () and M. Hakan Berument ()
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Merve Osmanbeyoglu: Bilkent University
Nukhet Dogan: Ankara Hacı Bayram Veli University
M. Hakan Berument: Bilkent University

International Journal of Economic Policy Studies, 2022, vol. 16, issue 1, No 8, 159-178

Abstract: Abstract This paper studies the effects of the exchange rate regime of the Mexican economy on how the oil price shocks affect the domestic economic performance by considering the period from January 1992 to December 2019. The empirical evidence reported here reveals that a positive oil price shock appreciates the local currency, increases interest rates, output, and prices. However, once the exchange rate channel is closed, the interest rate increases, and prices will be higher. However, we could not find any statistically significant evidence of the effect on output changes with the exchange rate regime. Thus, the flexible exchange rate regime may promote price stability when the Mexican economy faces an oil price shock.

Keywords: Oil price shocks; Exchange rate channel; Vector autoregressive models (search for similar items in EconPapers)
JEL-codes: C32 F41 Q43 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s42495-021-00072-3

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