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

January 1, 1991

Preview Citation

Format: Chicago

Hoe Ee Khor, and Liliana Rojas-Suárez. Interest Rates in Mexico: The Role of Exchange Rate Expectations and International Creditworthiness, (USA: International Monetary Fund, 1991) accessed October 13, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper explores how interest rates on domestic financial assets in Mexico are linked to expectations of exchange rate changes and to perceptions about the default risks contained in Mexico’s external debt. It is shown that the interest rate differentials between peso- and U.S. dollar-denominated domestic assets reflected some concerns about the exchange rate policy during the period under study. In addition, the evidence suggests that the interest rate on a U.S. dollar-denominated Mexican domestic asset is linked (i.e., cointegrated) to the yield implicit in the secondary market price for external debt issued by Mexico.

Subject: Domestic debt, Exchange rate adjustments, Exchange rates, External debt, Financial services, Foreign exchange, Interest rate parity, Public debt

Keywords: Domestic debt, Domestic interest rates, Exchange rate adjustments, Exchange rates, Interest rate differential, Interest rate parity, Interest rates in Mexico, Risk-free interest rate, Secondary market market price, Secondary market price, U.S. dollar, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1991/012
Stock No:

WPIEA0121991
ISBN:

9781451925388
ISSN:

1018-5941

Notes

Explores how interest rates on domestic financial assets in Mexico are linked to expectations of exchange rate changes and to perceptions about the default risks contained in Mexico's external debt. Also published in Staff Papers, Vol. 38, No. 4, December 1991.

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