The Tale of Three Amigos: Remittances, Exchange Rates, and Money Demand in Mexico

The author analyzes the relationship between remittances, exchange rates, and money demand in Mexico. He finds that shocks to remittances have a positive impact on domestic money demand. The results also suggest the existence of a bi‐directional relationship between remittances and the exchange rate...

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Bibliographic Details
Published inReview of development economics Vol. 13; no. 1; pp. 1 - 14
Main Author Vargas-Silva, Carlos
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.02.2009
Subjects
Correlation analysis
Development economics
Foreign exchange rates
Remittances
Studies
Mexico
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Summary:The author analyzes the relationship between remittances, exchange rates, and money demand in Mexico. He finds that shocks to remittances have a positive impact on domestic money demand. The results also suggest the existence of a bi‐directional relationship between remittances and the exchange rate. Furthermore, positive shocks to remittances are found to have a negative impact on Mexico's real exchange rate. This indicates that remittances appreciate the Mexican peso and therefore may impact on the competitiveness of the tradable sector negatively.
Bibliography:istex:6B9018DE2BF702532B04D436FB794C09DA945577
ark:/67375/WNG-PNKNQQ45-6
ArticleID:RODE468
The author wishes to thank Donald Freeman, Hiranya Nath, Susan Pozo, Isabel Ruiz, Stephanie Seguino, and Mark Wheeler for helpful comments and suggestions. An earlier draft of this article was presented at the 70th Annual Meeting of the Midwest Economic Association in Chicago, Illinois.
ISSN:1363-6669
1467-9361
DOI:10.1111/j.1467-9361.2008.00468.x