Mexico's Integration into NAFTA Markets: A View from Sectoral Real Exchange Rates and Transaction Costs

 
Author/Editor: Blavy, Rodolphe ; Juvenal, Luciana
 
Publication Date: May 01, 2008
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: A self-exciting threshold autoregressive model is used to measure transaction costs that may explain relative price differentials and nonlinearities in the behavior of sectoral real exchange rates across Mexico, Canada and the U.S. Interpreting price threshold bands as transactions costs, we find evidence that Mexico still face higher transaction costs than their developed counterparts, even though trade liberalization lowers relative price differentials between countries. The distance between countries and nominal exchange rate volatility are found to be determinants of transaction costs that limit price convergence. Other factors-including weak domestic competition and transportation-are also likely to be important.
 
Series: Working Paper No. 08/123
Subject(s): Mexico | Economic integration | Real effective exchange rates | Prices | International trade agreements

Author's Keyword(s): NAFTA | law of one price | exchange rates | SETAR | nonlinearities | sectoral real exchange rate.
 
English
Publication Date: May 01, 2008
Format: Paper
Stock No: WPIEA2008123 Pages: 25
Price:
US$18.00 (Academic Rate:
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