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Questioning the effect of the real exchange rate on growth: new evidence from Mexico

Author

Listed:
  • Florencia Médici

    (Research Professors, Center for Studies of Political Economy and Development, National University of Moreno, Buenos Aires, Argentina)

  • Agustín Mario

    (Research Professors, Center for Studies of Political Economy and Development, National University of Moreno, Buenos Aires, Argentina)

  • Alejandro Fiorito

    (Research Professors, Center for Studies of Political Economy and Development, National University of Moreno, Buenos Aires, Argentina)

Abstract

This study provides new evidence showing that the real exchange rate (RER) does not play an important role in the growth of Mexican GDP. Economic growth is not an automatically predetermined result of relative price correction, and it is important to consider distinctive aspects of national institutional arrangements (fiscal and monetary, for example) for understanding theoretical causality of demand. The empirical results show public expenditure is an overlooked variable in regressions where the exchange rate affects product growth. After incorporating public expenditure, the RER impact on growth becomes insignificant. For its part, public expenditure has a positive and significant effect on GDP in the long term. The RER does not lead to greater GDP since exports are not stimulated through price.

Suggested Citation

  • Florencia Médici & Agustín Mario & Alejandro Fiorito, 2021. "Questioning the effect of the real exchange rate on growth: new evidence from Mexico," Review of Keynesian Economics, Edward Elgar Publishing, vol. 9(2), pages 253-269, April.
    • Handle: RePEc:elg:rokejn:v:9:y:2021:i:2:p253-269
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    Citations

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    Cited by:

    1. Abdallah, Ali, 2022. "Dépréciation réelle de la monnaie et croissance économique [Can real currency depreciation lead growth?]," MPRA Paper 113183, University Library of Munich, Germany.
    2. Ramona Tiganasu & Gabriela Carmen Pascariu & Dan Lupu, 2022. "Competitiveness, fiscal policy and corruption: evidence from Central and Eastern European countries," Oeconomia Copernicana, Institute of Economic Research, vol. 13(3), pages 667-698, September.

    More about this item

    Keywords

    exchange rate; autonomous demand; growth; Mexico; vector error-correction model;
    All these keywords.

    JEL classification:

    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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