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The Mexican Peso And The Korean Won Real Exchange Rates: Evidence From Productivity Models

  • Andre Varella Mollick

    ()

    (Department of Economics, ITESM Campus Monterrey)

  • Margot Quijano

    ()

    (Department of Economics, ITESM Campus Monterrey)

Using the U.S. as benchmark country, Korean data from 1970:1 to 2000:4 and Mexican data from 1983:1 to 2000:4 are decomposed into traded and non-traded sectors. We find that the traditional purchasing power parity (PPP) model performs remarkably well for the Peso and that the productivity model appears adequate for the Peso but not for the Won. As Mexican relative traded goods productivity rises, the nominal Peso appreciates (coefficients between -2.03 and -2.16). Conversely, as U.S. relative traded goods productivity rises, the Peso depreciates (coefficients between 2.06 and 2.48). Although predicting correctly the direction of change, such large magnitudes suggest only partial support for the theoretical mechanism in Mexico. Coefficients with contrary signs obtained in Korea may indicate competing models (neoclassical or Ricardian) are more appropriate to capture the relationship between productivity and exchange rates.

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Article provided by Chung-Ang Unviersity, Department of Economics in its journal Journal Of Economic Development.

Volume (Year): 29 (2004)
Issue (Month): 1 (June)
Pages: 189-208

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Handle: RePEc:jed:journl:v:29:y:2004:i:1:p:189-208
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  1. Denisard Alves & Regina Celia Cati & Vera Lucia Fava, 2001. "Purchasing power parity in Brazil: a test for fractional cointegration," Applied Economics, Taylor & Francis Journals, vol. 33(9), pages 1175-1185.
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  3. Maeso-Fernandez, Francisco & Osbat, Chiara & Schnatz, Bernd, 2001. "Determinants of the euro real effective exchange rate: a BEER/PEER approach," Working Paper Series 0085, European Central Bank.
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  5. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
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  7. Ron Alquist & Menzie D. Chinn, 2002. "Productivity and the Euro-Dollar Exchange Rate Puzzle," NBER Working Papers 8824, National Bureau of Economic Research, Inc.
  8. Cedric Tille & Nicolas Stoffels & Olga Gorbachev, 2001. "To what extent does productivity drive the dollar?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 7(Aug).
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