Exchange rate regime, world oil prices and the Mexican economy

Date
2021-11-11
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Source Title
International Journal of Economic Policy Studies
Print ISSN
2524-4892
Electronic ISSN
1881-4387
Publisher
Springer Nature Switzerland AG
Volume
16
Issue
1
Pages
159 - 178
Language
English
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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.

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