Mexico's integration into NAFTA markets: a view from sectoral real exchange rates

Rodolphe Blavy and Luciana Juvenal

Review, 2009, issue Sep, pages 441-464

Abstract: The authors use a threshold autoregressive model to confirm the presence of nonlinearities in sectoral real exchange rate dynamics across Mexico, Canada, and the United States for the periods before and after the North American Free Trade Agreement (NAFTA). Although trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries, the authors find, by using estimated threshold bands, that Mexico still faces higher transaction costs than its developed counterparts. Other determinants of transaction costs are distance and nominal exchange rate volatility. The authors' results show that the half-lives of sectoral real exchange rate shocks, calculated by Monte Carlo integration, imply much faster adjustment in the post-NAFTA period.

Keywords: Foreign exchange rates; North American Free Trade Agreement; Mexico (search for similar items in EconPapers)
Date: 2009
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Working Paper: Mexico's integration into NAFTA markets: a view from sectoral real exchange rates (2008)
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