The relationship between oil prices,the stock market and the exchange rate: Evidence from Mexico |
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| Institution: | 1. School of International Business, Zhejiang Financial College, Hangzhou 310018, China;2. School of Business Administration, Zhejiang Gongshang University, Hangzhou 310018, China;3. Research Center for Regional Financial Development, Zhejiang Financial College, Hangzhou 310018, China;4. Academy of Financial Research, Zhejiang University, Hangzhou 310058, China;1. Stetson School of Business and Economics, Mercer University, United States;2. Department of Economics, College of Business, Florida Atlantic University, United States |
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| Abstract: | This paper analyzes the variables of oil price, exchange rate and stock market index to explain how they interact with each other in the Mexican economy. The examined period includes monthly data from January 1992 to June 2017. A Vector Autoregressive Model (VAR) is implemented that includes oil prices, the nominal exchange rate, the Mexican stock market index, and the consumer price index. Results indicate that the exchange rate has a negative and statistically significant effect on the stock market index; this indicates that an appreciation of the exchange rate is related to an increase in the stock market index. It is also found that the consumer price index has a positive effect on the exchange rate and a negative effect on the stock market index. The results also indicate that oil prices are statistically significant against the exchange rate, concluding that an increase in oil prices creates an appreciation of the exchange rate. In addition, the impulse-response functions show that the effects found tend to disappear over time. |
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| Keywords: | Exchange rate Oil prices Stock market Mexico VAR |
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