Random walks and half-lives in Chilean and Mexican peso real exchange rates: 1980-2003
AbstractSeveral papers have shown that high-inflation contributes to mean reversion in real exchange rates. This paper studies the Chilean peso (CLP) and Mexican peso (MXN) real exchange rates over 1980-2003. Three datasets are used: two with quarterly and monthly bilateral data (against the U.S. dollar) with consumer and producer price indices and another with monthly real effective rate exchange rates (REER). Unit root tests do not reject the root in levels for both currencies. Half-lives, however, contrast markedly: at 5 years or infinity for the Chilean peso and between 1 and 3 years for the Mexican peso. These findings suggest that the sharp depreciations in MXN and Mexico’s relatively higher inflation record may have amplified monetary forces in the dynamics of the real exchange rates.
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Bibliographic InfoArticle provided by Universidad del CEMA in its journal Journal of Applied Economics.
Volume (Year): X (2007)
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ARMA models; half-lives; random walks; real exchange rates; unit roots;
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- Fullerton Jr., Thomas M. & Fierro, Karen P. & Villalobos, Emmanuel, 2009. "Cross-border restaurant price and exchange rate interactions," The North American Journal of Economics and Finance, Elsevier, vol. 20(3), pages 281-288, December.
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