The PPP hypothesis and structural breaks: the case of Mexico
We test the purchasing power parity hypothesis for the Mexican peso/US dollar real exchange rate using monthly data for 1969–2010. Results suggest that the real exchange rate reverts to a changing mean. These mean shifts can be explained by liberalization policies implemented during the 1980s and 1990s that reduced trade barriers in the Mexican economy. Such policies modified the tradable/non-tradable goods composition of the price index producing mean shifts in the real exchange rate associated with PPP. Copyright Springer-Verlag Berlin Heidelberg 2013
Volume (Year): 45 (2013)
Issue (Month): 3 (December)
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