Interest Rates in Mexico: The Role of Exchange Rate Expectations and International Creditworthiness
January 1, 1991
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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
Pages:
38
Volume:
1991
DOI:
Issue:
012
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.
