Effects of crude oil prices and macroeconomic conditions on output growth in Mexico

Abstract

The objective of the paper is to examine the impact of higher oil prices on Mexico's real GDP. Applying an open economy model, this paper finds that more money supply, more deficit spending, a higher real stock price, real appreciation of the peso, a lower US interest rate, and a lower expected inflation rate would increase real GDP. In addition, the elasticity of real GDP with respect to the real oil price is estimated to be 0.05, suggesting that the real oil price would need to rise 20% in order for real GDP to increase by 1%.