The Covid-19 consequences on the Mexico GDP and the exchange rate in 2020
DOI:
https://doi.org/10.29201/peipn.v17i34.84Keywords:
exchange rate, economic recession, macroeconomic model, economic effects of Covid-19, aggregate demand contraction in an open economyAbstract
The objective is to develop a theoretical model to study the impact of the aggregate demand contraction on output and exchange rate. A system of differential equations is obtained and the variables adjustment process is depicted in a phase diagram. The model explains that the aggregate demand contraction causes a decrease in production and an exchange rate depreciation. Three sources for the aggregate demand contraction are identified: decreases in investment, in Mexican oil price and in the manufacturing exports, mainly caused by the rise of Covid-19. The model also allows analyzing the impact of a decrease in the interest rate of the external country, as well as an increase in the supply of real monetary balances of the domestic country. The economic information available in the first semester of 2020 is consistent with the theoretical model qualitative prediction.
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