Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208152
Authors: 
López Marmolejo, Arnoldo
Ventosa-Santaulària, Daniel
Year of Publication: 
2018
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-957
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.
Subjects: 
Nominal Exchange Rate
Productivity
Federal Reserve Assets
Prices
JEL: 
C13
C22
E24
O11
O19
O47
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode
Document Type: 
Working Paper

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