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Capital Flows and Real Exchange Rate Appreciation in Mexico

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  • Ibarra, Carlos A.

Abstract

Following the recently-developed bounds testing approach, the paper analyzes the long-run determinants of the Mexican peso’s real exchange rate from 1988Q1 to 2008Q2. Controlling for the standard determinants, the paper shows that all types of capital inflows tended to appreciate the peso. In contrast to recent multi-country studies, it finds no evidence of a less harmful effect from foreign direct investment (FDI)—on the contrary, the FDI’s appreciation effect can be particularly strong—and interprets this finding. The paper also shows that monetary policy, through changes in the short-term interest differential, can have persistent, level effects on the real exchange rate.

Suggested Citation

  • Ibarra, Carlos A., 2011. "Capital Flows and Real Exchange Rate Appreciation in Mexico," World Development, Elsevier, vol. 39(12), pages 2080-2090.
  • Handle: RePEc:eee:wdevel:v:39:y:2011:i:12:p:2080-2090
    DOI: 10.1016/j.worlddev.2011.05.020
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    References listed on IDEAS

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    Cited by:

    1. Guglielmo Maria Caporale & Faek Menla Ali & Fabio Spagnolo & Nicola Spagnolo, 2015. "International Portfolio Flows and Exchange Rate Volatility for Emerging Markets," CESifo Working Paper Series 5615, CESifo Group Munich.
    2. Konstantins Benkovskis & Julia Wörz, 2016. "Non-price competitiveness of exports from emerging countries," Empirical Economics, Springer, vol. 51(2), pages 707-735, September.
    3. Thomas Goda & Alejandro Torres, 2013. "Tasa de cambio real y recomposición sectorial en Colombia," DOCUMENTOS DE TRABAJO CIEF 010936, UNIVERSIDAD EAFIT.
    4. Khairul Akmaliah Adham & Hasmiah Kasimin & Nurul Atasha Jamaludin & Siti Khadijah Mohd Ghanie & Nor Azzatunnisak Mohd Khatib & Mohd Fuaad Said, 2016. "Developing a Cybernetics Approach to Analysing Inclusive Growth Constraints," Systemic Practice and Action Research, Springer, vol. 29(3), pages 215-234, June.
    5. Thomas Goda & Alejandro Torres García, 2015. "Flujos de capital, recursos naturales y enfermedad holandesa: el caso colombiano," Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 33(78), pages 197-206, Diciembre.
    6. Fizza Malik, 2016. "Modeling Dynamics of Exchange Rates Volatility: A Case of Pakistan from 1980-2010," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(3), pages 144-161, September.
    7. Branko Milanovic & Carlos Villalobos Barría & Stephan Klasen & Sebastian Vollmer, 2016. "The Distribution Dynamics of Human Development in Mexico 1990–2010," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62, pages 47-67, August.
    8. Thomas Goda & Alejandro Torres, 2013. "Overvaluation of the real exchange rate and the Dutch Disease: the Colombian case," DOCUMENTOS DE TRABAJO CIEF 010930, UNIVERSIDAD EAFIT.
    9. repec:wsi:serxxx:v:62:y:2017:i:01:n:s0217590816500168 is not listed on IDEAS

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