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The Real Exchange Rate, Regime Changes and Volatility Shifts

Author

Listed:
  • Daniel Ventosa-Santaularia

    (Division of Economics, CIDE)

  • Frederick Wallace

    (Department of Economic and Administrative Sciences, University of Quintana Roo)

  • Manuel Gomez-Zaldívar

    (Department of Economics and Finance, University of Guanajuato)

Abstract

We make use of a data set that is both long span and high frequency to test for purchasing power parity while allowing for a structural shift in the volatility of the Mexico-US bilateral real exchange rate. The Kim, Leybourne and Newbold (2002) unit root test, robust to changes in the innovation variance, indicates mean stationarity of the monthly real exchange rate, hence evidence of PPP, for the full sample, 1930-2012 and various subsamples. The persistence of deviations of the real rate from its PPP level as measured by half-lives ranges from 1.37 to 2.41 years.

Suggested Citation

  • Daniel Ventosa-Santaularia & Frederick Wallace & Manuel Gomez-Zaldívar, 2013. "The Real Exchange Rate, Regime Changes and Volatility Shifts," Working papers DTE 551, CIDE, División de Economía.
    • Handle: RePEc:emc:wpaper:dte551
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    References listed on IDEAS

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    Cited by:

    1. Frederick H. Wallace, 2017. "Purchasing power parity in Mexico since 1933," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 26(1), pages 1-18, December.
    2. de Jesús Fonseca, Felipe & Gómez-Zaldívar, Manuel & Ventosa-Santaulària, Daniel, 2020. "Public investment and economic activity in Mexico, 1925-1981," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-24.

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    More about this item

    Keywords

    PPP; Structural breaks; Mexico;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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