Analysis of the Mexican Peso-US dollar exchange rate volatility through stochastic modeling
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2024v39n100/LopezKeywords:
Foreign exchange, Mexican peso , Exchange rate , volatility models , Covid-19Abstract
We analize the Mexican peso-US dollar exchange parity the volatility using three models in order to evaluate the exchange rate risk performance and the these models capability of modeling such risk. The period June 21st, 2017 to June 21st, 2022 is marked by singular events that pressed this exchange rate parity, making it of great interest to study the tools that can be used to measure this uncertainty besides the study of the exchange rate uncertainty itself. The arrival of a left-wing politician to the presidency was an unprecedented event. At the beginning of 2020 the price war in the oil market and the emergence of the Covid-19 pandemic had important effects in the world economy. Finally, the war in Ukraine added pressures to the international trade of raw materials, inducing an inflationary episode with bad expectations about the economic performance around the world. The exchange rate scenarios posed by the aforesaid events provide us with a natural context to test which of the posited volatility models offers a better fit. Unanimously, the results under the three models suggest that during the first year of the President López Obrador period the exchange rate uncertainty was reduced compared to previous levels, returning again to those minor levels after the forced closure of economic activities due to the emergence of Covid-19, even though the exchange fluctuation band has been slightly higher than before the pandemic and the war on East Europe.
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