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The relationship between oil prices, the stock market and the exchange rate: Evidence from Mexico

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  • Areli Bermudez Delgado, Nancy
  • Bermudez Delgado, Estefanía
  • Saucedo, Eduardo

Abstract

This paper analyzes the variables of oil price, exchange rate and stock market index to explain how they interact with each other in the Mexican economy. The examined period includes monthly data from January 1992 to June 2017. A Vector Autoregressive Model (VAR) is implemented that includes oil prices, the nominal exchange rate, the Mexican stock market index, and the consumer price index. Results indicate that the exchange rate has a negative and statistically significant effect on the stock market index; this indicates that an appreciation of the exchange rate is related to an increase in the stock market index. It is also found that the consumer price index has a positive effect on the exchange rate and a negative effect on the stock market index. The results also indicate that oil prices are statistically significant against the exchange rate, concluding that an increase in oil prices creates an appreciation of the exchange rate. In addition, the impulse-response functions show that the effects found tend to disappear over time.

Suggested Citation

  • Areli Bermudez Delgado, Nancy & Bermudez Delgado, Estefanía & Saucedo, Eduardo, 2018. "The relationship between oil prices, the stock market and the exchange rate: Evidence from Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 45(C), pages 266-275.
    • Handle: RePEc:eee:ecofin:v:45:y:2018:i:c:p:266-275
    DOI: 10.1016/j.najef.2018.03.006
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    More about this item

    Keywords

    Exchange rate; Oil prices; Stock market; Mexico; VAR;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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