Remittances in Mexico and their unobserved components

Francisco Corona and Pedro Orraca

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: The present study aims to determine the common trends and the permanent and transitory components of remittances received by Mexican households. This is done by estimating a small Dynamic Factor Model (DFM), using the approach first proposed by Gonzalo and Granger (1995), determining the number of common trends subject to the cointegration results. The study also shows the similarities between this small DFM with respect to large DFM, which are widely used in the econometric literature. The results indicate the presence of one cointegration relationship. Consequently, there are four common trends. These common factors are negatively dominated by Mexico's economic activity and positively by the U.S. industrial production. The effects of the exchange rate and the U.S. unemployment rate are positive, but less relevant. This economic scenario leads to remittances exceeding its permanent component

Keywords: Remittances; P-T; decomposition; Dynamic; Factor; Models (search for similar items in EconPapers)
JEL-codes: C38 F24 F44 (search for similar items in EconPapers)
Date: 2016-04
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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:22674

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