Arora, V. and M. Cerisola, 2001, “How does U.S. Monetary Policy Influences Sovereign Spreads in Emerging Markets?” IMF Staff Papers 45(3): 474–98.
Bank of Mexico, 2015, Sincronización de la Producción Manufacturera Mexicana con la de Estados Unidos, Informe Trimestral, Abril-Junio 2015, Banco de México, pp. 24–25.
Buitron, C. and E. Vesperoni, 2015, “Spillover Implications of Differences in Monetary Conditions in the United States and Euro Area,” International Monetary Fund, Washington, D.C.
Chiquiar, D., E. Fragoso and M. Ramos-Francia, 2007, “La Ventaja Comparativa y el Desempeño de las Exportaciones Manufactureras Mexicanas en el Periodo 1996–2005,” Banco de México Working Paper No. 2007–12.
Ebeke, C. and A. Kyobe, 2015, “Global Financial Spillovers to Emerging Market Sovereign Bond Markets”, IMF Working Papers, No. 15/141.
International Monetary Fund (IMF), 2014c, Mexico: 2014 Article IV Consultation—Staff Report, IMF Country Report No. 14/319 (Washington).
Kamil, H. and J. Zook, 2012, “What Explains Mexico’s Recovery of U.S. Market Share?,” Selected Issues Paper, IMF Country Report No. 12/317.
Litterman, R., 1986, “Forecasting with Bayesian Vector Autoregressions: Five Years of Experience,” Journal of Business and Economic Statistics, Vol. 4, No. 1, pp. 25–38.
Matheson, T. and E. Stavrev, 2014, “News and Monetary Shocks at a High Frequency: A Simple Approach,” Economics Letters, Vol. 125(2), pp. 282–286.
Osterholm, P. and J. Zettelmeyer, 2007, “The Effects of External Conditions on Growth in Latin America,” IMF Working Paper, WP/07/176, 2007.
Sims, C., and T. Zha, 1998, “Bayesian Methods for Dynamic Multivariate Models,” International Economic Review, Vol. 39, No. 4, pp. 949–68.
Uribe, M., and V. Z. Yue, 2006, “Country Spreads and Emerging Countries: Who Drives Whom?” Journal of International Economics 69(1): 6–36.
Appendix I. Historical Decomposition of Real GDP Growth (Includes U.S. Industrial Production)
Appendix II. Impulse Responses (Section D)
Appendix III. Impulse Responses (Section E)
Prepared by Juliana D. Araujo and Alexander Klemm. The authors thank Dora Iakova and Fabian Valencia for valuable comments and suggestions and Alexander Herman for outstanding research assistance.
While higher U.S. rates have coincided with wider spreads on foreign-currency debt in EMs (Arora and Cerisola (2001), Uribe and Yue (2006)), increased foreign investment in local bond markets could have contributed to greater linkages between U.S. and domestic yields in Mexico (see next paragraph for a discussion).
Modified “Minnesota priors” (Litterman, 1986) were used where each variable is assumed to follow a first-order autoregressive process with independent, normally distributed errors and coefficients of 0.8. The relative weight of the prior, as in Sims and Zha (1998), was set to
The remaining shocks are treated as residual and are termed internal. As such, the residual shocks could also partly embody other factors such as common or exogenous shocks (e.g., natural disasters).
By conducting a similar exercise but including U.S. and Mexico Industrial Production instead of real GDP growth, we might better capture trade linkages across both economies. The exercise yields similar qualitative results but it suggests a lower positive contribution of external factors in the last 5 quarters of the sample period (see Appendix I).
Some Mexico specific factors that could have helped explain the deceleration in activity, which are expected to revert going forward, include the reduction of oil production in 2013 and 2014 as well as the decrease in housing construction due to financial problems in some housing development companies.
Here we focus on the impact of changes in monetary conditions in the U.S. although euro area shocks are also computed. In a first stage, stock prices and bond yields in the U.S. are stripped out from risk-appetite shocks measured by the VIX. In a second stage, real and money shocks within the U.S. are identified as in Matheson and Stavrev (2014).
We convert the identified monthly shocks to quarterly frequency by summing the shocks within each quarter. The sample period is 2001Q3-2014Q4.