Abstract.
Effects of external and income shocks on consumption and on the current account in Mexico from 1980 to 2000 are investigated. An intertemporal model captures the extent into which non-traded goods consumption affects traded-goods consumption, clarifying the roles of intratemporal or intertemporal substitution. Vector autoregressions (VARs) show that the 1% shock to non-traded goods consumption affects traded-goods consumption by −2% immediately, reverting to zero only after one year, supporting the intratemporal channel. Real exchange rate (RER) shocks exert considerable macroeconomic fluctuations. The 1% shock to RER affects traded goods consumption by −2% immediately, reaching −5% one year later. At the expense of income shocks, RER shocks grow in explanatory power over time: from 20%–25% at 1 quarter to 65%–69% of the variance of traded goods consumption 3 years later. Figures for the current account range from 14% to 68%, while income shocks appear less important. In contrast, for non-traded goods, RER shocks roughly match the quantitative importance of income shocks, reinforcing the theoretical analysis.
Similar content being viewed by others
Author information
Authors and Affiliations
Additional information
First version received: June 2001/Final version received: July 2002
RID="*"
ID="*" Previous versions of this paper were presented at the conferences: “Economic and Financial Cycles and NAFTA: Micro and Macro Issues and Analysis” in Mexico City and at the “35th Annual Meeting of the Canadian Economics Association” in Montréal. I wish to thank two anonymous referees of this journal for very helpful comments, Steven Ambler, Vincent Dropsy, João Faria, Michel Normandin, Yoshi Otani, Tsunemasa Shiba and Gerardo Villoslado for comments and encouragement. I remain solely responsible for the shortcomings of this paper. Financial support from the Japanese Ministry of Education and Culture in early parts of this project is gratefully acknowledged.
Rights and permissions
About this article
Cite this article
Mollick, A. Real exchange rate shocks on tradables, nontradables, and the current account: Mexico, 1980–2000.. Empirical Economics 28, 615–638 (2003). https://doi.org/10.1007/s001810200151
Issue Date:
DOI: https://doi.org/10.1007/s001810200151