Why does the peso-dollar exchange rate show a depreciation trend? The role of productivity differentials |
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| Institution: | 1. Inter-American Development Bank (IADB), USA;2. Centro de Investigación y Docencia Económicas, CIDE, Carretera México-Toluca 3655, Col. Lomas de Santa Fe, Del. Álvaro Obregón, México D.F, C.P. 01210, Mexico;1. School of Business, East China University of Science and Technology, 130 Meilong Road, Shanghai 200237, China;2. Department of Finance, East China University of Science and Technology, Shanghai 200237, China;3. Department of Economics, University of Waterloo, 200 University Avenue West, Ontario, N2L 3G1, Canada;1. Department of Economics, Tunghai University, No. 1727, Sec. 4, Xitun Dist., Taiwan Boulevard, Taichung, 40704, Taiwan;2. Department of Accounting, Feng Chia University, Taiwan;1. ESSCA School of Management, France;2. Institut Supérieur de Gestion, 2000, Le Bardo, University of Tunis, Tunisia;3. LAREQUAD FSEG de Tunis, University of Tunis El Manar, Tunisia;1. Department of Logistics Management, National Kaohsiung University of Science and Technology, 1, University Rd., Yanchao Dist., Kaohsiung City 824, Taiwan;2. Department of Business Administration, Fu Jen Catholic University, Taiwan;3. Department of Risk Management and Insurance, Risk and Insurance Research Center, College of Commerce, National Chengchi University, 64, Sec. 2, Zhi-Nan Road, Wen-Shan District, Taipei 11605, Taiwan;4. Department of Leisure and Sports Management, Far East University, 49, Zhonghua Rd., Xinshi Dist., Tainan City 74448, Taiwan;1. Universidad de Zaragoza, Spain;2. Banco de España, Spain |
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| Abstract: | Over the last three decades, Mexico's macroeconomic policy has been driven by a sound orthodox strategy: an open economy via many trade agreements signed since the mid-1980s, a nominal exchange rate under a flexible regime since 1994, central bank autonomy, and responsible fiscal policy, among other benchmarks. Nevertheless, the exchange rate has continued on a path of depreciation against the US dollar. In this paper, we show that although an equilibrium relationship exists between the exchange rate and prices in Mexico and the US (its main commercial partner), there are other forces affecting the former. The main factor in this relentless long-term depreciation is the loss of productivity in Mexico relative to the US. In addition, we show that the extraordinary liquidity supplied by the US during the 2008 crisis caused the Mexican peso to appreciate against the dollar. |
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| Keywords: | Nominal exchange rate Productivity Federal reserve assets Prices C13 C22 E24 O11 O19 O47 |
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