Mexico's integration into NAFTA markets: a view from sectoral real exchange rates

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Mexico's integration into NAFTA markets: a view from sectoral real exchange rates

Author Info

Rodolphe Blavy
Luciana Juvenal

Additional information is available for the following registered author(s):

Luciana Juvenal

Abstract

The authors use a threshold autoregressive model to confirm the presence of nonlinearities in sectoral real exchange rate dynamics across Mexico, Canada, and the United States for the periods before and after the North American Free Trade Agreement (NAFTA). Although trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries, the authors find, by using estimated threshold bands, that Mexico still faces higher transaction costs than its developed counterparts. Other determinants of transaction costs are distance and nominal exchange rate volatility. The authors' results show that the half-lives of sectoral real exchange rate shocks, calculated by Monte Carlo integration, imply much faster adjustment in the post-NAFTA period.

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Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2009)
Issue (Month): Sep ()
Pages: 441-464
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:fip:fedlrv:y:2009:i:sep:p:441-464:n:v.91no.5

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Paper
- Rodolphe Blavy & Luciana Juvenal, 2008. "Mexico's integration into NAFTA markets: a view from sectoral real exchange rates," Working Papers 2008-046, Federal Reserve Bank of St. Louis. [Downloadable!]

References listed on IDEAS
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Other versions:
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Other versions:
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Other versions:
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Other versions:
- Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-98, March.
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This page was last updated on 2009-11-18.

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