Open AccessExchange Rate Pass-Through to Prices in Mexico: A Study of the Main Border and Non-Border Cities
Author(s) -
Eduardo Saucedo,
Jorge Iván González
Publication year - 2021
Language(s) - English
Resource type - Journals
ISSN - 1665-5346
DOI - 10.21919/remef.v16i2.468
Subject(s) - metropolitan area , exchange rate , economics , price index , consumer price index (south africa) , proxy (statistics) , liberalization , monetary economics , vector autoregression , commodity , interest rate , price level , econometrics , international economics , monetary policy , geography , market economy , statistics , mathematics , archaeology
This study analyzes the exchange rate pass-through effect on the Consumer Price Index (CPI) in Mexico's main border and 27 non-border metropolitan cities. The period examined includes monthly data from January 2002 to December 2019. A vector autoregressive model (VAR) is used, which includes formal employment at the city level as a proxy to economic development, interest rates, nominal exchange rates, each analyzed city’s CPI, U.S. consumer prices, energy commodity prices and control variables such as service sector employment share and large firm employment share. Impulse response functions are constructed. Results for the 2002-2016 period indicate that exchange rate changes primarily affect border cities. Different arguments are included to justify such results. Pass-through values are also found to increase in general for all cities when the period 2017-2019 (January 2017 when important gasoline price shocks started previous its price liberalization in December 2017) is included in the regressions.