Real exchange rate shocks on tradables, nontradables, and the current account: Mexico, 1980–2000

Andre Mollick ()

Empirical Economics, 2003, vol. 28, issue 3, 615-638

Abstract: Effects of external and income shocks on consumption and on the current account in Mexico from 1980 to 2000 are investigated. An intertemporal model captures the extent into which non-traded goods consumption affects traded-goods consumption, clarifying the roles of intratemporal or intertemporal substitution. Vector autoregressions (VARs) show that the 1% shock to non-traded goods consumption affects traded-goods consumption by −2% immediately, reverting to zero only after one year, supporting the intratemporal channel. Real exchange rate (RER) shocks exert considerable macroeconomic fluctuations. The 1% shock to RER affects traded goods consumption by −2% immediately, reaching −5% one year later. At the expense of income shocks, RER shocks grow in explanatory power over time: from 20%–25% at 1 quarter to 65%–69% of the variance of traded goods consumption 3 years later. Figures for the current account range from 14% to 68%, while income shocks appear less important. In contrast, for non-traded goods, RER shocks roughly match the quantitative importance of income shocks, reinforcing the theoretical analysis. Copyright Springer-Verlag Berlin Heidelberg 2003

Keywords: Key words: Real Exchange Rate; Traded Goods; Non-traded goods; Current Account; VAR.; JEL classification system: F15; F33. (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1007/s001810200151

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