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Interest Rates in Mexico: The Role of Exchange Rate Expectations and International Creditworthiness

Author

Listed:
  • Hoe E. Khor

    (International Monetary Fund)

  • Liliana Rojas-Suarez

    (International Monetary Fund)

Abstract

The link is explored between interest rates on domestic financial assets in Mexico and expectations of exchange rate changes and perceptions about default risks contained in Mexico's external debt. Interest rate differentials between peso- and U.S. dollar-denominated assets are shown to have reflected concerns about the exchange rate policy during the period considered. The evidence also suggests that the interest rate on a U.S. dollardenominated Mexican domestic asset is linked to the yield implicit in the secondary market price for external debt issued by Mexico.

Suggested Citation

  • Hoe E. Khor & Liliana Rojas-Suarez, 1991. "Interest Rates in Mexico: The Role of Exchange Rate Expectations and International Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 850-871, December.
    • Handle: RePEc:pal:imfstp:v:38:y:1991:i:4:p:850-871
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    Cited by:

    1. Kaminsky, Graciela L. & Leiderman, Leonardo, 1998. "High real interest rates in the aftermath of disinflation: is it a lack of credibility?," Journal of Development Economics, Elsevier, vol. 55(1), pages 191-214, February.
    2. Liliana Rojas‐Suárez & Sebastián Sotelo, 2007. "The Burden Of Debt: An Exploration Of Interest Rate Behavior In Latin America," Contemporary Economic Policy, Western Economic Association International, vol. 25(3), pages 387-414, July.
    3. Hernández, Juan R., 2020. "Covered Interest Parity: A Stochastic Volatility Approach to Estimate the Neutral Band," MPRA Paper 100744, University Library of Munich, Germany.
    4. Hernández, Juan R., 2014. "Peso-Dollar Forward Market Analysis: Explaining Arbitrage Opportunities during the Financial Crisis," MPRA Paper 100653, University Library of Munich, Germany.
    5. Bush Georgia, 2019. "Bank foreign currency funding and currency markets: the case of Mexico post GFC," Working Papers 2019-01, Banco de México.
    6. Hernández Juan R., 2014. "Peso-Dollar Forward Market Analysis: Explaining Arbitrage Opportunities during the Financial Crisis," Working Papers 2014-09, Banco de México.

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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