Mexico's integration into NAFTA markets: a view from sectoral real exchange rates

Using a self-exciting threshold autoregressive model, we confirm the presence of nonlinearities in sectoral real exchange rate (SRER) dynamics across Mexico, Canada and the US in the pre-NAFTA and post-NAFTA periods. Measuring transaction costs using the estimated threshold bands, we find evidence that Mexico still faces higher transaction costs than their developed counterparts. Trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries. Other determinants of transaction costs are distance and nominal exchange rate volatility. Our results show that the half-lives of SRERs shocks, calculated by Monte Carlo integration, imply much faster adjustment in the post-NAFTA period.Foreign exchange rates ; North American Free Trade Agreement ; Mexico

Mexico's integration into NAFTA markets: a view from sectoral real exchange rates

The authors use a threshold autoregressive model to confirm the presence of nonlinearities in sectoral real exchange rate dynamics across Mexico, Canada, and the United States for the periods before and after the North American Free Trade Agreement (NAFTA). Although trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries, the authors find, by using estimated threshold bands, that Mexico still faces higher transaction costs than its developed counterparts. Other determinants of transaction costs are distance and nominal exchange rate volatility. The authors' results show that the half-lives of sectoral real exchange rate shocks, calculated by Monte Carlo integration, imply much faster adjustment in the post-NAFTA period.Foreign exchange rates ; North American Free Trade Agreement ; Mexico

Inflation and Monetary Pass-Through in Guinea

The paper analyzes the dynamics of inflation in Guinea during 1992-2003 applying cointegration and error-correction modeling to a bivariate model that includes consumer price and monetary variables. The empirical results, based on quarterly data, confirm the existence of a long-run relationship between money supply and consumer prices. This paper argues further that the pass-through has increased in recent years. Short-term dynamics are shown to accentuate the long-run impact. Impulse response analysis shows that a shock in the money stock will have an increasing impact over two years and will then stabilize at a higher level.Consumer prices;Economic models;inflation, money supply, monetary policy, price level, money growth, money demand, money stock, monetary fund, rate of inflation, high inflation, price inflation, monetary financing, monetary aggregates, inflationary pressures, real money, inflation equation, money balances, monetary growth, money market, liquidity management, inflation money, resurgence of inflation, reduction in inflation, central bank, rates of inflation, inflation dynamics, actual rate of inflation, nominal interest rates, inflation growth, loose monetary policy, monetary expansion, inflationary expectations, average rate of inflation, monetary shock

Monitoring and Commitment in Bank Lending Behavior

The paper proposes a theoretical argument on the nature of bank lending, based on the idea that, through commitment and monitoring, banks overcome basic informational asymmetries with borrowers. By bringing together loan commitment theories and credit rationing theories, the paper shows that, within a framework of asymmetric information between lenders and borrowers and under costly termination of lending arrangements, commitment may explain the accumulation of nonperforming loans by banks. Two additional results follow: (i) that banks favor borrowers with well-known production functions and long-term credit history; and (ii) that interest rate spreads may be large if significant market imperfections prevail.Credit;Banking;Bank credit;Bank supervision;probability, equation, bank lending, loan commitment, equations, banking environment, control systems, banking sector, internal control, nonperforming loan, bank loan rate indexation, bank loan, bank acts, bank monitoring, deposit insurance, banking firm, information dissemination, bank runs, connected lending, bank behavior