Empirical Economics

, Volume 45, Issue 3, pp 1351–1359 | Cite as

The PPP hypothesis and structural breaks: the case of Mexico

  • Manuel Gómez-Zaldívar
  • Daniel Ventosa-Santaulària
  • Frederick H. Wallace
Article

Abstract

We test the purchasing power parity hypothesis for the Mexican peso/US dollar real exchange rate using monthly data for 1969–2010. Results suggest that the real exchange rate reverts to a changing mean. These mean shifts can be explained by liberalization policies implemented during the 1980s and 1990s that reduced trade barriers in the Mexican economy. Such policies modified the tradable/non-tradable goods composition of the price index producing mean shifts in the real exchange rate associated with PPP.

Keywords

PPP Structural breaks Mexico Real exchange rate 

JEL Classification

F31 C22 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Manuel Gómez-Zaldívar
    • 1
  • Daniel Ventosa-Santaulària
    • 2
  • Frederick H. Wallace
    • 3
  1. 1.Department of Economics and FinanceUniversidad de GuanajuatoGuanajuatoMexico
  2. 2.Centro de Investigación y Docencia Económicas (CIDE), División de EconomíaCarretera México-Toluca 3655 Col. Lomas de Santa FeMexicoMexico
  3. 3.Department of Economic and Administrative SciencesUniversidad de Quintana RooQuintana RooMexico

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