Real Exchange Rate Response to Capital Flows in Mexico: An Empirical Analysis

Marcelo Dabós and V. Juan-Ramon

No 2000/108, IMF Working Papers from International Monetary Fund

Abstract: This study shows that in Mexico there is a long-run relationship between the real exchange rate and capital inflows, the external terms of trade, and productivity in the manufacturing sector. A once-and-for-all unit increase in the ratio of quarterly capital inflow to quarterly (annualized) GDP causes a long-run real appreciation of the peso of about 12 percent. The analysis also reveals a structural break in 1995, which coincides with the change to a floating exchange rate arrangement, and an overvaluation of the peso in real terms on the eve of the end–1994 crisis in the range of 12 to 25 percent.

Keywords: WP; nominal exchange rate; Export real exchange rate; capital inflow; terms of trade; productivity; equilibrium-correction model; exchange rate response; explanatory variables; natural logarithm; productivity index; EqCM estimation; response to capital; exchange rate liberalization; coefficient of the equilibrium correction term; regression estimate; terms of trade index; income effect; external terms of trade; Real exchange rates; Capital inflows; Capital flows; Real exports (search for similar items in EconPapers)
Pages: 33
Date: 2000-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=3636 (application/pdf)

Related works:
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:imf:imfwpa:2000/108

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().