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The PPP hypothesis and structural breaks: the case of Mexico |
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| Authors: | Manuel Gómez-Zaldívar Daniel Ventosa-Santaulària Frederick H Wallace |
| Institution: | 1. Department of Economics and Finance, Universidad de Guanajuato, Guanajuato, Mexico 2. Centro de Investigación y Docencia Económicas (CIDE), División de Economía, Carretera México-Toluca 3655 Col. Lomas de Santa Fe, Delegación álvaro Obregón, 01210, Mexico, D.F., Mexico 3. Department of Economic and Administrative Sciences, Universidad de Quintana Roo, Quintana Roo, Mexico |
| 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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