Why Does the Peso-Dollar Exchange Rate Show a Depreciation Trend?: The Role of Productivity Differentials

Arnoldo Lopez Marmolejo and Daniel Ventosa-Santaulària

No 9207, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: Over the last three decades, Mexico’s macroeconomic policy has been driven by a sound orthodox strategy: an open economy via many trade agreements signed since the mid-1980s, a nominal exchange rate under a flexible regime since 1994, central bank autonomy, and responsible fiscal policy, among other benchmarks. Nevertheless, the exchange rate has continued on a path of depreciation against the US dollar. In this paper, we show that although an equilibrium relationship exists between the exchange rate and prices in Mexico and the US (its main commercial partner), there are other forces affecting the former. The main factor in this relentless long-term depreciation is the loss of productivity in Mexico relative to the US. In addition, we show that the extraordinary liquidity supplied by the US during the 2008 crisis caused the Mexican peso to appreciate against the dollar.

Keywords: Productivity; Nominal Exchange Rate; Federal Reserve Assets; Prices (search for similar items in EconPapers)
JEL-codes: C22 E24 O11 O19 O47 (search for similar items in EconPapers)
Date: 2018-10
References: Add references at CitEc
Citations:

Downloads: (external link)
https://publications.iadb.org/publications/english ... ty-Differentials.pdf (application/pdf)

Related works:
Journal Article: Why does the peso-dollar exchange rate show a depreciation trend? The role of productivity differentials (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:9207

DOI: 10.18235/0001370

Access Statistics for this paper

More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().