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

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  • Andre Varella Mollick

    () (Department of Economics, ITESM Campus Monterrey)

  • Margot Quijano

    () (Department of Economics, ITESM Campus Monterrey)

Abstract

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.

Suggested Citation

  • Andre Varella Mollick & Margot Quijano, 2004. "The Mexican Peso And The Korean Won Real Exchange Rates: Evidence From Productivity Models," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 29(1), pages 189-208, June.
  • Handle: RePEc:jed:journl:v:29:y:2004:i:1:p:189-208
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    References listed on IDEAS

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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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    4. Francisco Maeso-Fernandez & Chiara Osbat & Bernd Schnatz, 2002. "Determinants of the Euro Real Effective Exchange Rate: A BEER/PEER Approach," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 437-461, December.
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    6. Chinn, Menzie D, 1999. "On the Won and Other East Asian Currencies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(2), pages 113-127, April.
    7. Cheung, Yin-Wong & Lai, Kon S., 1993. "Long-run purchasing power parity during the recent float," Journal of International Economics, Elsevier, vol. 34(1-2), pages 181-192, February.
    8. Ricardo Faria, Joao & Leon-Ledesma, Miguel, 2003. "Testing the Balassa-Samuelson effect: Implications for growth and the PPP," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 241-253, June.
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    More about this item

    Keywords

    Cointegration; Non-traded Goods; Traded Goods; Traditional PPP; Productivity Models;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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