On the Instability of Variance Decompositions of the Real Exchange Rate Across Exchange- Rate-Regimes: Evidence from Mexico and the United States
Variance decompositions of the Mexico-United States real exchange rate are examined using monthly data on consumer prices and the nominal exchange rate for the period January, 1969 to February, 2000. The results show that the robust result found in industrial-country data that most of the variation of the real exchange rate is due to fluctuations in prices of tradable goods and nominal exchange rates holds only in periods in which Mexico was
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