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.
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Gómez-Zaldívar, M., Ventosa-Santaulària, D. & Wallace, F.H. The PPP hypothesis and structural breaks: the case of Mexico. Empir Econ 45, 1351–1359 (2013). https://doi.org/10.1007/s00181-012-0653-6
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DOI: https://doi.org/10.1007/s00181-012-0653-6