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Summary: In this paper we use manufacturing data on Colombian exports and bank financing to estimate the credit elasticity of exports. The data allows us to construct a supply side instrumental variable for the credit of manufacturers that we use to address a possible reverse causality problem. We find that access to credit produces a significant increase in the revenue of exporters, explained by the positive effect of credit on the trade margins. Likewise, we find that across manufacturers, the impact of credit on the margins varies by firm size. Medium-sized manufacturers use credit to increase their market reach, market penetration and product mix. The largest manufacturers use credit to increase their market reach, while the smallest manufacturers use it to expand their product mix.
Author(s): Roa Mónica; Molina Danielken     

Summary: In this paper we analyze the impact and persistence of shocks to global (push) and domestic (pull) factors on each component of the financial account for the Mexican Balance of Payments at the highest degree of disaggregation, including investment by foreign residents in Mexican public and private sector securities, as well as investment by domestic residents in foreign securities. To this end, we estimate impulse response functions from vector autoregressive models for the period 1995-2015. We find that an increase in the foreign interest rate leads to lower portfolio investment, particularly in Mexican public sector securities. An increase in global risk generates lower portfolio investment, particularly in private sector securities. Foreign investors respond to a higher extent to foreign interest rate and liquidity shocks compared to domestic investors.
Author(s): Ibarra-Ramírez Raúl; Téllez León Elizabeth     

Summary: This article evaluates the use of financial data sampled at high frequencies to improve short-term forecasts of quarterly GDP for Mexico. In particular, the mixed data sampling (MIDAS) regression model is employed to incorporate both quarterly and daily frequencies while remaining parsimonious. To preserve parsimony, factor analysis and forecast combination techniques are used to summarize the information contained in a dataset containing 392 daily financial series. Our findings suggest that the MIDAS model that incorporates daily financial data lead to improvements for quarterly forecasts of GDP growth over traditional models that either rely only on quarterly macroeconomic data or average daily financial data. Furthermore, we explore the ability of the MIDAS model to provide forecast updates for GDP growth (nowcasting).
Author(s): Gómez-Zamudio Luis M.; Ibarra-Ramírez Raúl     

Summary: This paper investigates the performance of early warning systems in real-time, using forecasts of indicators that were available at the moment predictions are to be made. The study analyzes currency crises in eight Latin American and Central and Eastern European countries, distinguishing an estimation period 1990-2009 and a prediction period 2010-2014. We apply two varieties of early warning systems: the signal approach and the logit models. For both methods we find that using forecasts of the indicators worsens the predictive ability of early warning systems compared to using the most recently available information (ex post).
Author(s): Boonman Tjeerd; Jan P.A.M. Jacobs; Kuper Gerard H.; Romero Alberto     

Summary: We identify the international credit channel of monetary policy by analyzing the universe of corporate loans in Mexico matched with firm and bank data, and by exploiting foreign monetary policy shocks in a country with a large presence of European and U.S. banks. The robust results show that a softening of foreign monetary policy increases the supply of credit of foreign banks to Mexican firms. Each regional policy shock mainly affects supply via their respective banks, in turn implying strong real effects, with lower elasticities from QE. The impact of low foreign monetary policy rates and expansive QE is stronger on local borrowers with higher ex-ante loan rates -reach-for-yield- and with higher ex-post loan defaults, thus suggesting an international risk-taking channel of monetary policy. All in all, the results suggest spillovers of core-countries´ monetary policies on emerging markets, both in the foreign monetary softening and tightening part.
Author(s): Morais Bernardo; Peydró José-Luis; Roldán-Peña Jessica; Ruiz Claudia     

Summary: We empirically assess the extent to which relative growth rates in labor productivity, output, and wage, and growth in a proxy of firms' concentration can explain relative bank credit growth at a sectorial level in the Mexican economy. To that end, we divide our sectors into two groups based on their average concentration. Then, we estimate a panel regression with fixed effects for each group, positing relative credit growth as dependent variable. We document that changes in concentration growth contribute to explaining relative credit growth, particularly so in the group with high average concentration. However, in the group with low average concentration, relative credit growth seems to be also explained by relative labor productivity, output, and wage growth rates. We also discuss some mechanisms that might explain these results. Such mechanisms could lead to counterproductive dynamics between concentration growth and relative credit growth, for which we provide some empirical evidence.
Author(s): Ramos Francia Manuel; García-Verdú Santiago     

Summary: I show that, under standard assumptions, input-output (or network) economies are equivalent to value-added ones. Using a generalized version of the model in Acemoglu et al. (Econometrica, 2012), I show that the degree of influence of a given sector is equal to its value added share. This occurs because --by using the input-output network-- the output of a given sector indirectly contributes to the production of the final consumption of the rest of the sectors, which constitutes the source of its value. Thus, value-added economies deliver the same aggregate response to sectoral shocks than input-output ones. Despite this equivalence, the Leontief multiplier, which applies to sales and gross output, is intact.
Author(s): Leal-Ordoñez Julio C.     

Summary: We use the national Input-Output Matrix 2012 of INEGI and Flegg's approach to estimate four Regional Input-Output Matrices (RIOM) applying Banco de Mexico's regionalization. The RIOM are employed to evaluate the effects on gross output, value added and employment at the regional level resulting from two shocks: (a) the construction of a hypothetical automotive plant worth 1,000 million dollars; and (b) the production of 200,000 vehicles per year in that plant. The exercise reveals that: (i) the construction and the operation of the plant at full capacity have differentiated effects across regions and sectors on the studied variables, in both absolute and relative terms; (ii) the spillover effects resulting of both shocks within each region are concentrated in a limited number of sectors; and (iii) the north central region resulted to be the one receiving the largest relative benefits from both shocks.
Author(s): Torre Cepeda Leonardo E.; Alvarado Jorge; Quiroga Miroslava     

Summary: In this paper we use data from Mexico to identify Dornbusch's (1976) exchange rate overshooting hypothesis. We specify and estimate a structural cointegrated VAR that considers explicitly the presence of a set of long-run theoretical relations on macroeconomic variables (a purchasing power parity, an uncovered interest parity, a money demand, and a relation between domestic and U.S. output levels). We then impose a recursiveness assumption to identify the response of domestic variables to a monetary policy shock. The long-run restrictions embedded in the model are themselves identified, estimated, and tested using an ARDL methodology that is robust to the degree of persistence of the time series and, in particular, to whether they are trend- or first-difference stationary. With this approach, we are able to find that the response of the exchange rate to monetary policy shocks is consistent with Dornbusch's model.
Author(s): Capistrán Carlos; Chiquiar Daniel; Hernández Juan R.     

Summary: In a New Keynesian model with the BGG accelerator and risk shocks, we show that violations of Tinbergen's Rule and strategic interaction between economic authorities undermine the effectiveness of monetary and financial policies. Separate monetary and financial policy rules produce higher welfare than a monetary rule augmented with credit spreads. The latter yields a tight money-tight credit regime in which the interest rate responds too much to inflation and not enough to credit. Reaction curves for the policy-rule elasticities are nonlinear, which reflects shifts in these elasticities from strategic substitutes to complements. The Nash equilibrium is inferior to the Cooperative equilibrium, both are inferior to a first-best outcome, and both might produce tight money-tight credit regimes.
Author(s): Carrillo Julio A.; Mendoza Enrique G.; Nuguer Victoria; Roldán-Peña Jessica