The short and long-run determinants of the real exchange rate in Mexico

Antonia López Villavicencio and Josep Raymond ()

Working Papers from Department of Applied Economics at Universitat Autonoma of Barcelona

Abstract: This paper explores the real exchange rate behavior in Mexico from 1960 until 2005. Since the empirical analysis reveals that the real exchange rate is not mean reverting, we propose that economic fundamental variables affect its evolution in the long-run. Therefore, based on equilibrium exchange rate paradigms, we propose a simple model of real exchange rate determination which includes the relative labor productivity, the real interest rates and the net foreign assets over a long period of time. Our analysis also considers the dynamic adjustment in response to shocks through impulse response functions derived from the multivariate VAR model.

Keywords: real exchange rate; purchasing power parity; Balassa-Samuelson effect; error correction models; bounds cointegration test. (search for similar items in EconPapers)
JEL-codes: C32 F31 F41 F49 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-10
New Economics Papers: this item is included in nep-cba, nep-his and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:uab:wprdea:wpdea0606

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