Effects of Volatility of the Exchange Rate on Inflation Expectations and Growth Prospects in Mexico (2002-2014)

Guillermo Benavides, Isela Elizabeth Téllez-León, Francisco Venegas-Martínez


This paper is aimed at assessing the impact of exchange rate volatility on inflation expectations and economic growth prospects in Mexico. In order to examine whether there is some degree of causality, we will be using standard multivariate volatility models. The goal of this research is to measure the direction of causality, that is, we will analyze, econometrically, potential relationships in both directions. The main finding is that there is only a statistically significant relationship between the exchange rate volatility and the volatility of inflation expectations, while no statistically significant association with growth prospects was found; these results provide important information that could be used in monetary policy design.


Exchange Rate Volatility; Monetary Policy; Time Series Analysis

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