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Viewing report
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Exchange Rate Movements and the Mexico-United States
Agri-Food Trade. Edition No. 1
VDM Publishing House, Oct 2008, Pages: 352
The favorable Mexico-United States exchange rate has
been cited as an important factor for the growth in
exports of agri-food products from Mexico to the
United States. Some analysts have also emphasized
the importance of NAFTA and the exchange rate
volatility in the performance of the Mexico-US agri-
food trade. An important policy question is the
extent to which changes in the Mexico-US exchange
rate and its volatility have contributed to the
growth in agri-food trade between these two
countries. The results from cointegration analysis
show that while changes in exchange rate have a
positive effect on trade flows, volatility of the
exchange rate has a negative effect on trade flows.
The results indicate that the volatility measure
generated from a GARCH (1,1) model provides more
consistent results in terms of signs and sizes of
the estimated coefficients than those from other
volatility measures. While VEC models provide
results supporting the findings of the cointegration
results on the effects of exchange rate and its
volatility on trade flows, the short-run
elasticities are smaller than the corresponding long-
run elasticities.
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