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Currency Union and Real Exchange Rate Behavior

Author

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  • James R. Lothian

    (Fordham University)

  • Cornelia H. McCarthy

    (Fordham University)

Abstract

In this paper we study the behavior of the real exchange rate of three North American currencies vis-a-vis the U.S. dollar: the Canadian dollar the Mexican peso, and the Panamanian Balboa. Our principal object is to design an experiment in which meaningful comparisons of behavior across regimes would be possible. In the main we were unable to find any. The allegation of problems created due to aggregating data across regimes therefore receives no support at all in these data. A second criterion for choosing the countries in our sample was differences in level of economic development. The object here was to provide ample leeway for real variables to operate. For Mexico such factors do not appear to matter. For Panama they might be of some importance, but a modified form of PPP nevertheless continues to perform well.

Suggested Citation

  • James R. Lothian & Cornelia H. McCarthy, 2003. "Currency Union and Real Exchange Rate Behavior," International Finance 0311008, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpif:0311008
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    References listed on IDEAS

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    6. Sarno,Lucio & Taylor,Mark P., 2003. "The Economics of Exchange Rates," Cambridge Books, Cambridge University Press, number 9780521485845, October.
    7. James R. Lothian & Cornelia McCarthy, 2001. "Real Exchange-Rate Behaviour under Fixed and Floating Exchange Rate Regimes," International Finance 0107002, University Library of Munich, Germany.
    8. Cuddington, John T. & Liang, Hong, 2000. "Purchasing power parity over two centuries?," Journal of International Money and Finance, Elsevier, vol. 19(5), pages 753-757, October.
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    11. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Gerardo Esquivel & Raúl Razo, 2003. "Fuentes de la inflación en México, 1989-2000: Un análisis multicausal de corrección de errores," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 18(2), pages 181-226.

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    More about this item

    Keywords

    Real exchange rates; purchasing power parity; exchange rate regimes; currency unions.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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