Publication: Remittances in Mexico and their unobserved components
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2016-04
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Abstract
The present study aims to determine the common trends and the permanent and
transitory components of remittances received by Mexican households. This is
done by estimating a small Dynamic Factor Model (DFM), using the approach
first proposed by Gonzalo and Granger (1995), determining the number of
common trends subject to the cointegration results. The study also shows the
similarities between this small DFM with respect to large DFM, which are
widely used in the econometric literature. The results indicate the presence of
one cointegration relationship. Consequently, there are four common trends.
These common factors are negatively dominated by Mexico's economic
activity and positively by the U.S. industrial production. The effects of the
exchange rate and the U.S. unemployment rate are positive, but less relevant.
This economic scenario leads to remittances exceeding its permanent
component
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Remittances, P-T decomposition, Dynamic Factor Models