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Short‐Run And Long‐Run Determinants Of The Real Exchange Rate In Mexico

Author

Listed:
  • Antonia López Villavicencio

    (UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona)

  • Josep Lluís Raymond Bara

    (UAB - Universitat Autònoma de Barcelona = Autonomous University of Barcelona = Universidad Autónoma de Barcelona)

Abstract

This paper explores the real exchange rate behavior in Mexico from 1960 until 2005. Since the empirical analysis reveals that the real exchange rate is not mean reverting, we propose that economic fundamental variables affect its evolution in the long run. Therefore, based on equilibrium exchange rate paradigms, we propose a simple model of real exchange rate determination, which includes the relative GDP per capita, the real interest rates, and the net foreign assets over a long period of time. Our analysis also considers the dynamic adjustment in response to shocks through impulse response functions derived from the multivariate vector autoregressive (VAR) model.

Suggested Citation

  • Antonia López Villavicencio & Josep Lluís Raymond Bara, 2008. "Short‐Run And Long‐Run Determinants Of The Real Exchange Rate In Mexico," Post-Print hal-05455659, HAL.
    • Handle: RePEc:hal:journl:hal-05455659
    DOI: 10.1111/j.1746-1049.2007.00055.x
    Note: View the original document on HAL open archive server: https://hal.science/hal-05455659v1
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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