Asymmetric effects of real exchange rate movements on domestic value added in Mexican exports

Abstract

This thesis examines the asymmetric transmission of real effective exchange rate (REER) movements to domestic value added (DVA) embodied in Mexican manufacturing exports during 2012–2022. To save the limitation of the annual frequency of OECD Trade in Value Added (TiVA) tables, an Artificial Neural Network Mixed-Data Sampling (ANN-MIDAS) model is formulated to temporally disaggregate the DVA series to quarterly frequency. The quarterly series was used to estimate a non-linear autoregressive distributed lag (NARDL) framework to assess short- and long-run asymmetric dynamics. The empirical findings are not aligned with the classical symmetry hypothesis, with the long-run appreciation multiplier being nearly triple the depreciation multiplier. The asymmetry suggests the structure of imported intermediate inputs shared in Global Value Chains (GVCs) and dominant currency pricing (DCP) creates cost-push pressures that offset the traditional expenditure-switching gains. And it implies that exchange rate adjustments cannot substitute for targeted industrial policies in deepening domestic backward linkages and supplier capabilities.