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Can Currency Demand Be Stable Under a Financial Crisis? The Case of Mexico

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  • By May Khamis

    (International Monetary Fund)

  • Alfredo M. Leone

    (International Monetary Fund)

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    Abstract

    The paper finds strong evidence that real currency demand in Mexico remained stable throughout and after the financial crisis in Mexico. Cointegration analysis using the Johansen-Juselius technique indicates a strong cointegration relationship between real currency balances, real private consumption expenditures, and the interest rate. The dynamic model for real currency demand exhibits significant parameter constancy even after the financial crisis as indi-cated by a number of statistical tests. The paper concludes that the significant reduction in real currency demand under the financial crisis in Mexico could be appropriately explained by the change in the variables that historically explained the demand for real cash balances in Mexico. This result supports the Bank of Mexicoís use of a reserve money program to implement monetary policy under the financial crisis. Copyright 2001, International Monetary Fund

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

    Volume (Year): 48 (2001)
    Issue (Month): 2 ()
    Pages: 6

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    Handle: RePEc:pal:imfstp:v:48:y:2001:i:2:p:6

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    Cited by:
    1. Jose Sanchez-Fung, 2004. "Inflation targeting and monetary analysis in Chile and Mexico," Money Macro and Finance (MMF) Research Group Conference 2003, Money Macro and Finance Research Group 82, Money Macro and Finance Research Group.
    2. Erik Hjalmarsson & Par Osterholm, 2007. "Testing for cointegration using the Johansen methodology when variables are near-integrated," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 915, Board of Governors of the Federal Reserve System (U.S.).
    3. Ricardo Bebczuk & Tamara Burdisso & Máximo Sangiácomo, 2013. "Credit vs. Payment Services: Financial Development and Economic Activity Revisited," Department of Economics, Working Papers 097, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    4. Erik Hjalmarsson & Pär Österholm, 2010. "Testing for cointegration using the Johansen methodology when variables are near-integrated: size distortions and partial remedies," Empirical Economics, Springer, Springer, vol. 39(1), pages 51-76, August.
    5. Shigeru Iwata & Evan Tanner, 2003. "Pick Your Poison," IMF Working Papers, International Monetary Fund 03/92, International Monetary Fund.

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