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

26 Pages Posted: 11 Jan 2007 Last revised: 6 Nov 2007

Carlos Vargas-Silva

University of Oxford

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Abstract

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

Vargas-Silva, Carlos, The Tale of Three Amigos: Remittances, Exchange Rates and Money Demand in Mexico. Review of Development Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=956107

Carlos Vargas-Silva (Contact Author)

University of Oxford ( email )

58 Banbury Road
Oxford, Oxfordshire OX2 6QS
United Kingdom

HOME PAGE: http://www.carlosvargassilva.com

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