The real exchange rate process and its real effects: The cases of Mexico and the USA

Kevin Grier and Fausto Hernández-Trillo
Additional contact information
Fausto Hernández-Trillo: CIDE, http://www.cide.edu/investigador/profile.php?IdInvestigador=31
Authors registered in the RePEc Author Service: Fausto Hernandez-Trillo

Journal of Applied Economics, 2004, vol. 7, 1-25

Abstract: Exchange rate management is a salient macroeconomic issue, especially in developing countries. In this paper, we study political economy factors that may affect the real exchange rate (RER) process and the real economic effects of the RER. We review recent literature on the effects of elections on the exchange rate, and adapt BallÂ’s (1992) model to show that uncertainty about the future course of policy may make more appreciated RERÂ’s less predictable. We also review the literature on the real effect of RER appreciations and of RER uncertainty. We then construct a simultaneous GARCH-M model of the joint determination of the RER and output capable of testing our hypotheses simultaneously in a single model. We estimate the model using data first from Mexico, a developing country, and the US. In Mexico we find that elections significantly affect the evolution of the RER, that more appreciated RERs are less predictable, that RER depreciations lower output growth and that RER uncertainty lowers output growth, even when controlling for its wellstudied effect on trade. By contrast, none of these effects are found in the US data.

Keywords: real exchange rate volatility; economic growth; electoral cycle (search for similar items in EconPapers)
JEL-codes: F3 F4 O42 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://ucema.edu.ar/publicaciones/download/volumen7/grier.pdf (application/pdf)

Related works:
Journal Article: The real exchange rate process and its real effects: The cases of Mexico and the USA (2007)
Journal Article: The Real Exchange Rate Process and Its Real Effects: The Cases of Mexico and the USA (2004)
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:cem:jaecon:v:7:y:2004:n:1:p:1-25

Access Statistics for this article

Journal of Applied Economics is currently edited by Germán Coloma and Mariana Conte Grand and Jorge M. Streb

More articles in Journal of Applied Economics from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().