Resumo

CLAVELLINA MILLER, José Luis. On the Determinants of exchange rate and volatility. Economía UNAM [online]. 2018, vol.15, n.45, pp.70-88. ISSN 1665-952X.  https://doi.org/10.22201/fe.24488143e.2018.45.406.

The exchange rate volatility in Mexico has increased since the beginning of the monetary policy normalization in the US. There are many other factors that have increased volatility such as the deceleration of the Chinese economy, the Brexit, the possible renegotiation of NAFTA after the presidential elections in the US, as well as internal factors, for example slow economic growth, the fall in the state oil revenues and the high levels in public debt. The Mexican peso is one the currencies with worst performance among those in emerging markets during 2016.

This paper tries to identify the most relevant theoretical variables that affect the exchange rate in Mexico not only in the long run but also in the short run. Some of these variables are related to the rates of inflation between Mexico and the US, commercial barriers, productivity, internal fiscal position, growth perspectives and the possible downgrade of Mexico´s sovereign bonds. Another important element that has spurred volatility is the fact that peso has been used as a currency hedging instrument in the futures market.

In order to recover credibility in the Mexican economy and its currency, federal government needs to accomplish with its fiscal consolidation objectives by reducing the debt/GDP coefficient; observing the correct implementation of structural reforms, promoting economic growth, strengthening institutional structure and the rule of law and fighting against corruption and crime.

Palavras-chave : Money and Interest Rates; Financial Markets and the Macroeconomy; Government and the Monetary System; E4; E44; E42.

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