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Short‐Run And Long‐Run Determinants Of The Real Exchange Rate In Mexico

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  • Antonia LÓPEZ VILLAVICENCIO
  • Josep Lluís RAYMOND BARA

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 GDP per capita, 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 vector autoregressive (VAR) model.

Suggested Citation

  • Antonia LÓPEZ VILLAVICENCIO & Josep Lluís RAYMOND BARA, 2008. "Short‐Run And Long‐Run Determinants Of The Real Exchange Rate In Mexico," The Developing Economies, Institute of Developing Economies, vol. 46(1), pages 52-74, March.
    • Handle: RePEc:bla:deveco:v:46:y:2008:i:1:p:52-74
    DOI: 10.1111/j.1746-1049.2007.00055.x
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    2. Khulsum SHAIK & Babu RAO G, 2020. "Does exchange rate has any impact on economic growth in India? An empirical analysis," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(624), A), pages 223-234, Autumn.
    3. Atif, Syed Muhammad & Sauytbekova, Moldir & Macdonald, James, 2012. "The determinants of australian exchange rate: a time series analysis," MPRA Paper 42309, University Library of Munich, Germany.
    4. Carlos A. Ibarra, 2016. "Investment, asset market, and the relative unit labor cost in Mexico," Economic Change and Restructuring, Springer, vol. 49(4), pages 339-364, November.
    5. Baghestani, Hamid & Toledo, Hugo, 2019. "Oil prices and real exchange rates in the NAFTA region," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 253-264.
    6. Moritz Cruz, 2014. "International reserves and the mercantilist approach: some further evidence," Economics Bulletin, AccessEcon, vol. 34(1), pages 446-451.

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