No. 56 (2022)
Artículos

Impact of the Exchange Rate Volatility on Agricultural Trade between U.S. and Mexico (1990-2017)

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  • Guillermo Benavides Perales,
  • Francisco Venegas Martínez
Francisco Venegas Martínez
Instituto Politécnico Nacional
Bio
DOI: https://doi.org/10.24275/ETYPUAM/NE/562022/Benavides
Published February 15, 2022

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Abstract

Objective: this paper assesses the impact of the exchange rate volatility on the trade of corn and wheat between U.S. and Mexico during the 1990-2017 period, which considers the 1994 and 2008 Mexican exchange rate crises. Methodology: the exports function is modelled through an Error Correction Model (ECM) and, subsequently, for a robustness analysis, a Factor-Augmented Vector Autoregression (FAVAR) model is applied. Findings: the exchange rate variability has no statistically significant influence on corn and wheat spot price variability. The results may be attributable to the volume of international trade flows in both commodities. Finally, the exchange rate variability has a statistically significant influence on the futures basis of corn but not for wheat. Limitations: since there is no monthly data, prices for the agricultural products consists of monthly averages obtained from daily data of spot prices of corn and wheat. Practical Implications: the obtained results are consistent with one part of the specialized literature, which argues that exchange rate volatility does not affect agricultural trade. Social implications: improving the understanding of the effect of the exchange rate on corn and wheat trade between Mexico and the U.S. is crucial since corn is a fundamental part of the diet in Mexico and wheat in the U.S. Originality: As far as we know, there is no research that analyzes the effect of the exchange rate on cereal trade in these two countries during 1990-2017 with the economic techniques we use.

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