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Random walks and half-lives in Chilean and Mexican peso real exchange rates: 1980-2003

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Abstract

Several 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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  • André Varella Mollick, 2007. "Random walks and half-lives in Chilean and Mexican peso real exchange rates: 1980-2003," Journal of Applied Economics, Universidad del CEMA, vol. 10, pages 185-211, May.
  • Handle: RePEc:cem:jaecon:v:10:y:2007:n:1:p:185-211
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    Cited by:

    1. 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.
    2. D. Ventosa-Santaulària & M. Gómez-Zaldívar & F. H. Wallace, 2015. "The real exchange rate, regime changes and volatility shifts," Applied Economics, Taylor & Francis Journals, vol. 47(24), pages 2445-2454, May.

    More about this item

    Keywords

    ARMA models; half-lives; random walks; real exchange rates; unit roots;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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