The PPP hypothesis and structural breaks: the case of Mexico

Manuel Gómez-Zaldívar, Daniel Ventosa-Santaulària and Frederick Wallace

Empirical Economics, 2013, vol. 45, issue 3, 1359 pages

Abstract: We test the purchasing power parity hypothesis for the Mexican peso/US dollar real exchange rate using monthly data for 1969–2010. Results suggest that the real exchange rate reverts to a changing mean. These mean shifts can be explained by liberalization policies implemented during the 1980s and 1990s that reduced trade barriers in the Mexican economy. Such policies modified the tradable/non-tradable goods composition of the price index producing mean shifts in the real exchange rate associated with PPP. Copyright Springer-Verlag Berlin Heidelberg 2013

Keywords: PPP; Structural breaks; Mexico; Real exchange rate; F31; C22 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s00181-012-0653-6

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