Financial Liberalization, Structural Change, and Real Exchange Rate Appreciations
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Summary:
We account for the appreciation of the real exchange rate in Mexico between 1988 and 2002 using a two sector dynamic general equilibrium model of a small open economy with two driving forces: (i) differential productivity growth across sectors and (ii) a decline in the cost of borrowing in foreign markets. These two mechanisms account for 60 percent of the decline in the relative price of tradable goods and explain a large fraction of the reallocation of labor across sectors. We do not find a significant role for migration remittances, foreign reserves accumulation, government spending, terms of trade, or import tariffs.
Series:
Working Paper No. 2010/063
Subject:
Labor Real exchange rates Terms of trade Total factor productivity Wages
English
Publication Date:
March 1, 2010
ISBN/ISSN:
9781451982077/1018-5941
Stock No:
WPIEA2010063
Pages:
40
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