Mexico's Integration into NAFTA Markets: A View from Sectoral Real Exchange Rates and Transaction Costs

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Mexico's Integration into NAFTA Markets: A View from Sectoral Real Exchange Rates and Transaction Costs

Author Info

Rodolphe Blavy
Luciana Juvenal

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

Luciana Juvenal

Abstract

A self-exciting threshold autoregressive model is used to measure transaction costs that may explain relative price differentials and nonlinearities in the behavior of sectoral real exchange rates across Mexico, Canada and the U.S. Interpreting price threshold bands as transactions costs, we find evidence that Mexico still face higher transaction costs than their developed counterparts, even though trade liberalization lowers relative price differentials between countries. The distance between countries and nominal exchange rate volatility are found to be determinants of transaction costs that limit price convergence. Other factors-including weak domestic competition and transportation-are also likely to be important.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/123.

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Length: 25 pages
Date of creation: 15 May 2008
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Handle: RePEc:imf:imfwpa:08/123

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This paper has been announced in the following NEP Reports:

NEP-ALL-2008-11-11 (All new papers)
NEP-IFN-2008-11-11 (International Finance)

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