Title

The Price of Violence: Interest Rates and Homicides in Mexico

Author(s)

Ethan B. Kapstein Ethan Kapstein (Princeton University and Arizona State University)

Adityamohan Tantravahi Adityamohan Tantravahi (Princeton University)

Abstract

Among its many deleterious effects on social well-being, violent conflict can undermine the economies of the countries in which it is ongoing. From a macroeconomic perspective, internal conflict can lead to reduced investment, output, and growth. We show that it can also increase the borrowing costs on government-issued debt. Specifically, we examine the effects of crime-related homicides on the spread between the monetary policy rate and short-term Mexican treasury bills, called "CETES," during the period 2010-2017. We show that homicides have a statistically significant effect on the spread, and in drawing a connection between violence and interest rates, we make a novel contribution to the literature on the macroeconomic effects of conflict.

Creation Date

2021-07

Section URL ID

Paper Number

26

URL

https://esoc.princeton.edu/WP26

File Function

Jel

E52, F52, O54

Keyword(s)

Mexico, Conflict, Crime, Political Economy, Development, State Fragility

Suppress

false

Series

12