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

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  • May Y. Khamis
  • Alfredo Mario Leone
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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 indicated 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 Mexico’s use of a reserve money program to implement monetary policy under the financial crisis.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/53.

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    Length: 26
    Date of creation: 01 Apr 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/53

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    Cited by:
    1. Carlos Andrés Perilla Castro, 2001. "Capitales mínimos de los establecimientos de crédito," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 271-353, julio-sep.
    2. Daniel G. Garcés Díaz, 2001. "Determinación del nivel de precios y la dinámica inflacionaria en México," Monetaria, Centro de Estudios Monetarios Latinoamericanos, vol. 0(3), pages 241-269, julio-sep.

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