Effects of Volatility of the Exchange Rate on Volatility of Inflation : Expectations and Growth Prospects in Mexico (2002-2014)

This research aims at assessing the impact of the volatility of the exchange rate on inflation expectations and economic growth prospects in Mexico. In order to see whether there is some degree of causality, we will be using standard multivariate volatility model. The goal of this research is to measure the directionality of the causality, that is, we will analyze, econometrically, potential relationship in both directions. The main finding is that there is only a statistically significant relationship between the exchange rate volatility and the volatility of inflation expectations, while no statistically significant with growth prospects was found; these results provide important information that could be used in monetary policy design