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Remittances in Mexico and their unobserved components

Author

Listed:
  • Francisco Corona
  • Pedro Orraca

Abstract

The present study aims to determine the common trends and the permanent and transitory components of remittances received by Mexican households. This is done by estimating a small Dynamic Factor Model (DFM), using the approach first proposed by Gonzalo and Granger [1995. “Estimation of Common Long-memory Components in Cointegrated Systems.” Journal of Business and Economic Statistics 13 (1): 27–35], determining the number of common trends subject to the cointegration results. The study also shows the similarities between this small DFM with respect to large DFM, which are widely used in the econometric literature. The results indicate the presence of one cointegration relationship. Consequently, there are four common trends. The cointegration relationship is negatively dominated by Mexico's economic activity and positively by the US industrial production. The effects of the exchange rate and the US unemployment rate are positive, but less relevant. This economic scenario leads to remittances exceeding its permanent component.

Suggested Citation

  • Francisco Corona & Pedro Orraca, 2019. "Remittances in Mexico and their unobserved components," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(8), pages 1047-1066, November.
    • Handle: RePEc:taf:jitecd:v:28:y:2019:i:8:p:1047-1066
    DOI: 10.1080/09638199.2019.1630847
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    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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