Currency Union and Real Exchange Rate Behavior

James R. Lothian and Cornelia H. McCarthy ()

International Finance from EconWPA

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.

Keywords: Real exchange rates; purchasing power parity; exchange rate regimes; currency unions. (search for similar items in EconPapers)
JEL-codes: F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-ifn
Date: 2003-11-12
Note: Type of Document - pdf
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0311008

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