Brooks, R., H. Edison, M. Kumar, and T. Sl⊘k, 2001, “Exchange Rates and Capital Flows,” IMF Working Paper No. 01/190.
Dabós, M. and V.H. Juan-Ramón, 2000, “Real Exchange Rate Response to Capital Flows in Mexico: An Empirical Analysis,” IMF Working Paper No. 00/108.
Jin, Z., 2003, “The Dynamics of Real Interest Rates, Real Exchange Rates and the Balance of Payments in China: 1980–2002, IMF Working Paper No. 03/67.
Prepared by N. Thacker.
Daily exchange rate data from Bloomberg are used for the analysis.
Although, as noted above, the correlation has broken down in recent months, with a correlation coefficient from May to end-August 2003 of -0.55.
See Economic Integration in the Americas: Lessons from NAFTA in United States—Selected Issues (EBS/03/253).
The latter would be more important in the case of Mexico, as its trade shares with the rest of the Latin American region are relatively low. Financial market interdependencies could arise from investor aversion to taking risks in the region, either because of herding effects or the negative impact on portfolios of institutions with investments across the region of losses in specific countries.
The correlation between the BRL-USD and USD-EUR rate from April–August 2003 is -0.64, and for the CLP-USD and USD-EUR rate is -0.24.