Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83724
Authors: 
Benavides, Guillermo
Capistrán, Carlos
Year of Publication: 
2009
Series/Report no.: 
Working Papers, Banco de México 2009-10
Abstract: 
To advance our understanding of the mechanisms through which monetary policy affect the economy, in this note we analyze the volatilities of the Mexican short-term interest rate and of the peso-dollar exchange rate under two monetary policy instruments: a non-borrowed reserves requirement target (the 'Corto') and an interest rate target. Using tests for multiple structural changes, we document that both volatilities decreased around the time Banco de México started the transition from the former to the latter. With respect to the volatility transmission from interest rates to exchange rates and vice versa, we find, using a bivariate GARCH model and causality-in-variance tests, bi-causality during the period of the Corto, but no causal relation after the transition started.
Subjects: 
Corto
Granger causality
Multiple structural breaks
Multivariate volatility
JEL: 
C22
E43
E52
F31
Document Type: 
Working Paper
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