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The Tale of Three Amigos: Remittances, Exchange Rates and Money Demand in Mexico

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  • Carlos Vargas-Silva

    (Department of Economics and International Business, Sam Houston State University)

Abstract

This article analyzes the relationship between remittances, exchange rates and money demand in Mexico. We find that shocks to remittances have a positive impact on domestic money demand. The results also suggest the existence of a bi-directional relationship between remittances and the exchange rate. Furthermore, positive shocks to remittances are found to have a negative impact on Mexico’s real exchange rate. This indicates that remittances appreciate the Mexican peso and therefore, may impact the competitiveness of the tradable sector negatively.

Suggested Citation

  • Carlos Vargas-Silva, 2007. "The Tale of Three Amigos: Remittances, Exchange Rates and Money Demand in Mexico," Working Papers 0704, Sam Houston State University, Department of Economics and International Business.
    • Handle: RePEc:shs:wpaper:0704
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    File URL: http://www.shsu.edu/academics/economics-and-international-business/documents/wp_series/wp07-04.pdf
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