Financial Liberalization, Structural Change, and Real Exchange Rate Appreciations

March 1, 2010

Preview Citation

Format: Chicago

Felipe Meza, and Carlos Urrutia. Financial Liberalization, Structural Change, and Real Exchange Rate Appreciations, (USA: International Monetary Fund, 2010) accessed December 29, 2024

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

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.

Subject: Labor, Real exchange rates, Terms of trade, Total factor productivity, Wages

Keywords: Interest rate, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/063
Stock No:

WPIEA2010063
ISBN:

9781451982077
ISSN:

1018-5941

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