The Tale of Three Amigos: Remittances, Exchange Rates and Money Demand in Mexico
26 Pages Posted: 11 Jan 2007 Last revised: 6 Nov 2007
This article analyzes the relationship between remittances, exchange rates and money demand in Mexico. We find 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 the competitiveness of the tradable sector negatively.
Keywords: Remittances, Exchange Rates, Money Demand
JEL Classification: F22, F31, E41
Suggested Citation: Suggested Citation