THE IMPORTANCE OF MACROECONOMIC CONDITIONS ON REMITTANCES IN THE LONG-RUN AND IN THE SHORT-RUN: THE CASE OF MEXICO

In this document we evaluate how macroeconomic conditions influence the amount of remittances sent to Mexico from the United States in the long-run and in the short-run. Specifically, we perform cointegration tests to determine the existence and magnitude of common trends between remittances and variables believed to influence their dynamics; including employment in the host country, the real exchange rate, credit granted to the private sector and inflation in Mexico. In addition, common cycle tests are performed to identify common transitory movements among said variables. Our findings indicate that employment in the US, and credit and inflation in Mexico, significantly affect remittances in the long-run. The real exchange rate and remittances are found to be positively related in the long-run, but negatively associated in the short-run.