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Current account and real exchange rate equilibrium: the case of manufacturing in Mexico, 2001-2019

Author

Listed:
  • Lorenzo Nalin
  • Juan Carlos Moreno Brid

Abstract

In this paper, we follow Bresser-Pereira et al. (2021) and estimate for Mexicoa a series of the real exchange rate (RER) that balances the current account for Mexico forthe period 2001q1-2019q4. In this process we take into account numerous determinants,including policy variables and financial indicators the evolution of the terms of trade, aswell as a proxi for the Balassa-Samuelson effects, inter alia. Our results show that in mostof the period analyzed there has been a trend tendency towards overvaluation, with theRER fluctuating above its equilibrium level. With cointegrating methods, and dynamicordinary least squared (DOLS) techniques, we examined the effects of exchange rate under and overvaluation on manufacturing; disaggregated in three sectors: i) technology intensive,ii) natural resource intensive and iii) labor intensive activities. Overall, our results indicatethat the real exchange rate has a significant influence on the rate of expansion of Mexico’smanufacturing real GDP. JEL Classification: C22; E44; F31; O24.

Suggested Citation

  • Lorenzo Nalin & Juan Carlos Moreno Brid, 2022. "Current account and real exchange rate equilibrium: the case of manufacturing in Mexico, 2001-2019," Brazilian Journal of Political Economy, Center of Political Economy, vol. 42(4), pages 914-933.
    • Handle: RePEc:ekm:repojs:v:42:y:2022:i:4:p:914-933:id:2371
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    More about this item

    Keywords

    Real exchange rate equilibrium; current account; manufacturing activity; Mexico;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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