Real Exchange Rate Response to Capital Flows in Mexico: An Empirical Analysis

Author/Editor:

Marcelo P. Dabós ; V. Hugo Juan-Ramon

Publication Date:

June 1, 2000

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This study shows that in Mexico there is a long-run relationship between the real exchange rate and capital inflows, the external terms of trade, and productivity in the manufacturing sector. A once-and-for-all unit increase in the ratio of quarterly capital inflow to quarterly (annualized) GDP causes a long-run real appreciation of the peso of about 12 percent. The analysis also reveals a structural break in 1995, which coincides with the change to a floating exchange rate arrangement, and an overvaluation of the peso in real terms on the eve of the end–1994 crisis in the range of 12 to 25 percent.

Series:

Working Paper No. 2000/108

Subject:

English

Publication Date:

June 1, 2000

ISBN/ISSN:

9781451853094/1018-5941

Stock No:

WPIEA1082000

Pages:

33

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