Abstract

RODRIGUEZ NAVA, Abigail  and  VENEGAS MARTINEZ, Francisco. Exchange rate effects on public budget: Monte Carlo simulation models. Contad. Adm [online]. 2010, n.232, pp.11-40. ISSN 0186-1042.

This paper is aimed at studying the effects of the exchange-rate variations on the budget deficit. To do this, the available deterministic models of budget deficit are extended by assuming that the movements of the exchange rate are driven by stochastic processes, and that the extreme and sudden changes are governed by a Poisson process. The equation that describes the exchange-rate dynamics is building by using an analogy with both the Ornstein-Uhlenbeck and the square root processes. Under the above assumptions and by using Monte Carlo simulations the variations of the peso-dollar exchange rate and the public deficit are estimated for the Mexican economy, between 1990 and 2008. The obtained results are consistent with the empirical evidence found on such a period; this indicates that the suggested methodology can be useful as an ex-ante tool to establish the budget public.

Keywords : Exchange rate; budget deficit; stochastic processes; Monte Carlo simulation.

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