Essays on the Mexican economy: Business cycles and remittances, monetary policy and Taylor-rules, and offshoring and volatility

This dissertation is comprised of three essays on Mexico. The first essay examines business cycles and remittances while the second essay examines whether Mexico's monetary policy follows the Taylor rule. The third essay examines volatility in Mexico's maquiladora industry.;The first essay analyzes business cycle properties of remittances and output for the United States and Mexico. Using an unobserved components state-space model, I decompose remittances and output into stochastic permanent and cyclical components. I then use the resulting stationary cyclical components to estimate co-movements between remittances and output. Empirical results indicate that remittances are counter-cyclical with Mexico. With respect to source country, remittances to Mexico are counter-cyclical with the United States business cycle. As a robustness check, I incorporate two other pair of countries into the analysis: the United States---El Salvador and Germany---Turkey.;The second essay examines whether Mexico's central bank follows the Taylor rule when setting monetary policy. Taylor argues that the same type of Taylor rule that has been widely used for developed economies could be employed for emerging markets but modifications might be needed to accommodate for differences in market conditions. For developed economies, real-time data has become the norm while the existing literature on Taylor rule and emerging market economies uses only revised data. As an attempt to fill this gap, I use real-time data to estimate Taylor rules for Mexico. In the spirit of Taylor's suggestion for modifications, I incorporate the real exchange rate into the analysis. Results indicate that both inflation and the output gap play a key role for Banco de Mexico when deciding monetary policy actions. The empirical evidence for the exchange rate is mixed.;The third chapter analyzes the impact that offshoring has in employment and output volatility in Mexico's maquiladora industry. I expand Bergin, Feenstra and Hanson's (BFH) seminal work in different directions. Empirical results suggest that the volatility in employment and output in Mexico's maquiladoras is greater than the one originally estimated by BFH. Therefore, offshoring via the maquiladora industry in Mexico can act as a greater cushion for business cycle fluctuations in the United States.