Real Exchange Rate Response to Capital Flows in Mexico [electronic resource] : An Empirical Analysis / Marcelo P Dabós.
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TextSeries: IMF Working Papers; Working Paper ; No. 00/108Publication details: Washington, D.C. : International Monetary Fund, 2000Description: 1 online resource (33 p.)ISBN: 1451853092 :ISSN: 1018-5941Subject(s): Capital Inflow | Capital Inflows | Equilibrium-Correction Model | Exchange Rate | Export Real Exchange Rate | Productivity | MexicoAdditional physical formats: Print Version:: Real Exchange Rate Response to Capital Flows in Mexico : An Empirical AnalysisOnline resources: IMF e-Library | IMF Book Store Abstract: 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.
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.
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