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


  • By May Khamis

    (International Monetary Fund)

  • Alfredo M. Leone

    (International Monetary Fund)


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

Suggested Citation

  • By May Khamis & Alfredo M. Leone, 2001. "Can Currency Demand Be Stable Under a Financial Crisis? The Case of Mexico," IMF Staff Papers, Palgrave Macmillan, vol. 48(2), pages 1-6.
  • Handle: RePEc:pal:imfstp:v:48:y:2001:i:2:p:6

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    References listed on IDEAS

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    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. 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, vol. 39(1), pages 51-76, August.
    2. Camila Figueroa & Michael Pedersen, 2017. "Forecasting Demand for Denominations of Chilean Coins and Banknotes," Working Papers Central Bank of Chile 799, Central Bank of Chile.
    3. Sanchez-Fung, Jose R, 2003. "Inflation targeting and monetary analysis in Chile and Mexico," Royal Economic Society Annual Conference 2003 179, Royal Economic Society.
    4. Elizabeth Bucacos & Gerardo Licandro, 2002. "Acerca de la estabilidad de la demanda de dinero. El caso de Uruguay: 1979.4-2002.3," Documentos de trabajo 2002001, Banco Central del Uruguay.
    5. Ramos Francia Manuel & Noriega Antonio E. & Rodríguez-Pérez Cid Alonso, 2015. "The Use of Monetary Aggregates as Indicators of the Future Evolution of Consumer Prices: Monetary Growth and Inflation Target," Working Papers 2015-14, Banco de México.
    6. Sanchez-Fung, Jose R., 2002. "Inflation targeting and monetary analysis in Chile and Mexico," Economics Discussion Papers 2002-7, School of Economics, Kingston University London.
    7. Shigeru Iwata & Evan Tanner, 2007. "Pick Your Poison: The Exchange Rate Regime and Capital Account Volatility in Emerging Markets," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(7-8), pages 363-381, September.
    8. Ricardo Bebczuk & Tamara Burdisso & Máximo Sangiácomo, 2012. "Credit vs. Payment Services: Financial Development and Economic Activity Revisited," BCRA Working Paper Series 201256, Central Bank of Argentina, Economic Research Department.
    9. Noriega Antonio E. & Ramos Francia Manuel & Rodríguez-Pérez Cid Alonso, 2015. "Money demand estimations in Mexico and of its stability 1986-2010, as well as some examples of its uses," Working Papers 2015-13, Banco de México.

    More about this item

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection


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