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The short and long-run determinants of the real exchange rate in Mexico

Author

Listed:
  • Antonia López Villavicencio

    (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

  • Josep Lluís Raymond Bara

    (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

Abstract

This paper explores the real exchange rate behavior in Mexico from 1960 until 2005. Since the empirical analysis reveals that the real exchange rate is not mean reverting, we propose that economic fundamental variables affect its evolution in the long-run. Therefore, based on equilibrium exchange rate paradigms, we propose a simple model of real exchange rate determination which includes the relative labor productivity, the real interest rates and the net foreign assets over a long period of time. Our analysis also considers the dynamic adjustment in response to shocks through impulse response functions derived from the multivariate VAR model.

Suggested Citation

  • Antonia López Villavicencio & Josep Lluís Raymond Bara, 2006. "The short and long-run determinants of the real exchange rate in Mexico," Working Papers wpdea0606, Department of Applied Economics at Universitat Autonoma of Barcelona.
    • Handle: RePEc:uab:wprdea:wpdea0606
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    References listed on IDEAS

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    More about this item

    Keywords

    real exchange rate; purchasing power parity; Balassa-Samuelson effect; error correction models; bounds cointegration test.;
    All these keywords.

    JEL classification:

    • 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
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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