Asymmetric real-exchange-rate effects on capital accumulation: Evidence from non-linear ARDL models for Mexico

The paper studies the effects of the real exchange rate (RER) on capital accumulation in Mexico in the period since the late 1980s. By testing for the existence of potential asymmetries, the paper seeks to clarify some of the controversies surrounding the subject. It shows the RER's long-run ef...

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Bibliographic Details
Published inLatin American economic review Vol. 27; no. 1; pp. 1 - 24
Main Author Ibarra, Carlos A.
Format Journal Article
LanguageEnglish
Published Heidelberg Springer 01.12.2018
Springer Berlin Heidelberg
Economica
Centro de Investigación y Docencia Económicas
Subjects
Accumulation
Asymmetric effects
Asymmetry
Capital
Capital accumulation
Capital formation
Development Economics
Economic models
Economic Policy
Economics
Economics and Finance
Educational Policy and Politics
Environmental Economics
Foreign exchange rates
Investment determinants
Labor Economics
Mexico
Non-linear ARDL model
Purchasing power parity
Real exchange rate
Regional/Spatial Science
Time series
Mexico
Asymmetric effects
Real exchange rate
E22
F43
Non-linear ARDL model
Investment determinants
Mexico
Capital accumulation
O11
O54
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Summary:The paper studies the effects of the real exchange rate (RER) on capital accumulation in Mexico in the period since the late 1980s. By testing for the existence of potential asymmetries, the paper seeks to clarify some of the controversies surrounding the subject. It shows the RER's long-run effects to be qualitatively symmetric but quantitatively asymmetric; thus, while appreciations slow accumulation, depreciations accelerate it, but to a lesser degree. Depreciations, moreover, have dynamically asymmetric effects, expansionary in the long run but contractionary in the short run. The effects are derived from non-linear autoregressive distributed lag models for the private capital accumulation rate in the manufacturing, tradables, and non-tradables sectors, and for the aggregate level of private fixed investment. The results help to reconcile the contradictory conclusions reached by previous studies of Mexico, and to clarify the potential role of the real exchange rate as either barrier or engine of growth.
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ISSN:2196-436X
2198-3526
2196-436X
DOI:10.1186/s40503-018-0057-x