Impact of Exchange Rate Volatility on Agricultural Trade between the U.S. and Mexico (1990-2017)

Objective: this paper assesses the impact of exchange rate volatility on the trade of corn and wheat between the U.S. and mexico during the 1990-2017 period, which encompasses both the 1994 and 2008 mexican exchange rate crises. Meth-odology: the exports function is first modeled through an Error correction model (ecm), with a Factor-augmented Vector autoregression (fava r) model subsequently applied for robustness analysis. Findings: the exchange rate vari-ability has no statistically significant influence on corn and wheat spot price variability. The results may be attributable to the volume of international trade flows in both commodities. Finally, the exchange rate variability has a statistically significant influence on the futures basis of corn but not wheat. Limitations: since no monthly data is available, prices for the agricultural products are based on monthly averages obtained from daily data of corn and wheat spot prices. Practical implications: the results obtained are consistent with one part of the specialized literature, which argues that exchange rate volatility does not affect agricultural trade. Social implications: improving understanding of the effect of the exchange rate on corn and wheat trade between mexico and the U.S. is crucial, since corn is a fundamental part of the diet in mexico and wheat in the U.S. Originality: as far as we know, no research has analyzed the effect of the exchange rate on cereal trade in these two countries during 1990-2017 with the economic techniques we use.