This paper uses an error-correction model of Mexican inflation to decompose the real appreciation of the peso during 1988-1994 into that part attributable to the peso's initial underevaluation, that part explained by growing domestic demand, and that part attributable to backward-looking...

In Mexico over the past few decades, devaluations have been associated nearly exclusively with economic contraction, while real appreciations have been followed by expansions. The authors attempt to disentangle the possible factors underlying the correlation - reverse causation from output to...