Trade deficit as a determinant of the interest rate and capital flows in Mexico from 1950 to 2014. A heterodox approach
Keywords:
capital flows, interest rate, trade deficit and MexicoAbstract
This article aims to test the hypothesis that countries with trade balance deficits need to set high interest rates to attract capital flows. In a series of papers, A. Shaikh has assembled this hypothesis based on Marx, Classical economists, and post-Keynesians such as Harrod. In this article, we used Mexico from the period 1950 to 2014 as a case study. In order to test our hypothesis, we use econometric techniques such as Granger causality to prove whether or not trade balance precedes and is a good predictor of the real interest rate free of risk.
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