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The Short-Term Effects of Fiscal Policy in Mexico: An Empirical Study

Author

Listed:
  • Víctor M. Cuevas Ahumada

    (Universidad Autónoma Metropolitana-Azcapotzalco)

Abstract

This paper investigates the short-term effects of fiscal policy on the Mexican economy. The empirical evidence shows that a fiscal expansion, resulting from a reduction in public sector revenues, produces the following effects: the money supply rises together with interest rates and prices, the real exchange rate depreciates despite higher interest payments to investors, economic activity increases and the trade balance deteriorates. An interesting finding is that fiscal expansion leads to real exchange rate depreciation in spite of an upward trend in interest rates, which is broadly consistent with the so-called country risk view of fiscal policy.

Suggested Citation

  • Víctor M. Cuevas Ahumada, 2009. "The Short-Term Effects of Fiscal Policy in Mexico: An Empirical Study," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 24(1), pages 109-144.
    • Handle: RePEc:emx:esteco:v:24:y:2009:i:1:p:109-144
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    File URL: https://estudioseconomicos.colmex.mx/index.php/economicos/article/view/127/129
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    Cited by:

    1. Bossone, Biagio & Cuccia, Andrea, 2020. "The portfolio theory of inflation and policy (in)effectiveness revisited: Corroborating evidence," Economics Discussion Papers 2020-2, Kiel Institute for the World Economy (IfW Kiel).

    More about this item

    Keywords

    fiscal policy; Mexican economy; SVAR and GVAR models.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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