Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 30 Shor-Run Dnamics of he Price Level and Exernal Exposure: Evidence from Mexico Ramon A. Casillo-Ponce * and Jorge Herrera Hernández ** * California Sae Universi, Los Angeles and Universidad Auonoma de Baja California; and ** Banco de Mexico Absrac In his documen we appl novel economeric echniques o esimae he shor-run dnamics of he price level wih respec o domesic and foreign facors. In paricular, we implemen he Vahid and Engle (1993) and he Engle and Kozicki (1993) common ccles mehodologies o deermine he exisence and magniude of common cclical flucuaions beween he price level, wages, and he exchange rae. In addiion, we presen an exercise o deermine he relaionship beween he shor-run effec of he exchange rae on he price level and he degree of exernal exposure in divisions and secors of he manufacuring indusr in Mexico. We find ha cclical flucuaions of wages and he exchange rae affec significanl he behavior of he price level. We also idenif a posiive associaion beween openness and he magniude of exchange rae pass-hrough o prices. Kewords: Price level, wages, exchange rae, shor-run dnamics, openness JEL classificaion: C3, E31, F4 1. Inroducion Deermining he facors ha influence he price level is a ask ha has occupied economiss for decades. The exercise is, of course, of exreme imporance a he polic making level. For he mos par, he analsis of inflaionar dnamics has considered long-run relaionships beween he price level and variables believed o affec is behavior. For he paricular case of Mexico we find several influenial aricles; Garces (1999), Esquivel and Razo (00), and Baqueiro e al. (003), for example. The firs documen presens a mark-up model of inflaion and finds ha wages and he exchange rae are imporan deerminans of he price level; bu no monear aggregaes. Ineresingl, Esquivel and Razo show, using an error correcion model, ha deviaions from equilibrium in he mone marke have a significan effec on inflaion. Lasl, Baqueiro e al. analze he imporance of he exchange rae pass-hrough on he price level under differen scenarios of inflaion. No surprisingl, he auhors find ha he magniude of he passhrough diminishes as inflaion decreases. Recognizing ha polic usuall responds o ransior changes in economic variables, in his documen we deviae from radiional lines of sud and evaluae he imporance of ransior shocks on he price level. To ha end, we conduc an analsis o idenif he exisence and
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 31 magniude of common cclical flucuaions among he producer price index, wages, and he bilaeral Mexico U.S. exchange rae. We noe ha he idenificaion of significan shor-run relaions among economic ime series can be performed via various mehodologies, including he esimaion of Vecor Auoregresion Models (VAR s) or Vecor Error Correcion Models (VEC s). In recen economics lieraure, however, auhors have emploed economeric echniques especiall designed o model shor-run flucuaions of ime series daa. Some of hese mehodologies include he Vahid and Engle (1993) esimaion of common ccles for non-saionar series; and he Engle and Kozicki (1993) echnique for saionar series. 1 Accordingl, in he presen documen we implemen he Vahid and Engle (VE hereafer) echnique for groups of variables ha presen common rends, and he Engle and Kozicki (EK hereafer) echnique for ses of variables for which coinegraion is no idenified. Alhough esimaing he effec of ransior shocks on he price level is an exercise ineresing in and of iself, we go a sep furher b evaluaing he relaionship beween hese shocks and he exernal exposure of indusries. In paricular, we ake daa on oal sales and foreign sales of he nine divisions of he manufacuring indusr in Mexico, and 47 of is secors, and derive a measure of exernal exposure. We hen regress his variable agains he coefficiens of exchange rae pass-hrough. Sudies similar in spiri o he one we conduc here include Yang (1997), Allaannis and Ihrig (001), and Campa and Goldberg (00, 004). Considering a Dixi-Sigliz model of produc differeniaion, Yang finds a posiive associaion beween he exchange rae pass-hrough and he degree of produc differeniaion in a sample of U.S. manufacuring indusries. Similarl, Allaannis and Ihrig analze he degree of exchange-rae exposure of manufacuring indusries o variables including expor and impor shares. Campa and Goldberg, on he oher hand, provide evidence of parial exchange rae pass-hrough o impor prices and show ha in he long-run, microeconomic variables are he mos imporan deerminans of changes in he exchange rae pass-hrough. In our exercise, we anicipae finding a direc relaionship beween openness and he response of he price level o exchange rae flucuaions. Reasonabl, we could argue ha prices in indusries ha are highl exposed o exernal shocks exhibi a more significan response o exchange rae variaion; compared wih prices of indusries wih a lower degree of exernal exposure. This is especiall compelling in he case of Mexico, where a number of sudies have shown ha he exchange rae pass-hrough o prices is quie significan. As such, prices of indusries wih a high degree of openness would be more exposed o exchange rae flucuaions han indusries hardl opened. The remaining of he documen is organized as follows: he economeric mehodolog is described in Secion. Secion 3 presens he daa. The esimaions and discussion of he resuls are repored in Secion 4. Secion 5 concludes.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 3. Mehodolog The VE echnique considers he Wold represenaion of he saionar firs difference of a vecor : nx1 * ( L) e = C( 1) e + ( 1 L) C ( L) e Δ = C (1) Inegraing (1) we obain * () 1 e C ( L) i= 0 = C e () i + which is he common rend represenaion derived in Sock and Wason (1988) an in fac a mulivariae version of he Beverage-Nelson rend-ccle decomposiion. In () he firs erm represens he rend componen and he second he saionar cclical componen of he ssem. ' The exisence of coinegraion implies ha α C( 1) = 0 and α is a nxr marix of r coinegraing coefficiens. Similarl, he exisence of common serial correlaion feaures implies ha ~ α ' C *( L ) = 0 and ~ α is a nxs marix of s common feaures. The coinegraing relaionships can be esimaed emploing various mehodologies. However, we use ha suggesed b Johansen (1991), since i allows us o compue he number of coinegraing relaions (r). Following VE, we noe ha once coinegraion has been idenified, he number of common in he feaures can be esimaed b firs compuing he squared canonical correlaions ( ) ssem, and hen esing he null hpohesis λ j = 0, j = 1,,..., s. Where s corresponds o he number of common ccles presen among he variables. Under he null, he relevan es saisic s ( ) ( ) ( is C p, s = T p 1 log 1 λ ) and has a χ disribuion wih s + snp + sr sn degrees i= 1 i of freedom. B conducing his es, we are able o deermine he exisence and number of common feaures, s, a he cclical frequenc. The EK echnique considers a regression-based es for common feaures. The auhors argue ha feaures in economic variables can be defined in erms of regression hpohesis. For example, in he model λ j = x β + z γ + ε (3) a es for serial correlaion would be a hpohesis es on γ, where would correspond o lags of and x o seasonal dummies or rends, for example. Suppose now ha wo series and are each esed for a paricular feaure esimaing he ssem z 1
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 33 1 x β 1 + zγ 1 + ε1 = x β + zγ + ε = (4) To es wheher he feaure of ineres is common o he series, one could es for he exisence of a δ such ha a combinaion u = 1 δ does no have he feaure; hence, he exercise amouns o esimaing δ. The auhors noice ha he esimaed coefficien, δˆ, is equivalen o he wo-sage leas squares esimae of δ in he model 1 = δ + φd + ε (5) where he lis of insrumens conains he se of lags of and in addiion o oher saionar variables, D is a se of deerminisric variables (inercep, rend, dummies and he like), ε is he error erm, and δ and φ are he coefficiens of he srucural form. Once his equaion is esimaed, and δˆ idenified, he es for common feaures demands a regression of εˆ agains he se of insrumens. The es saisic is TR of his regression and is disribued χ wih degrees of liber equal o he number of new regressors inroduced. I is worh menioning ha in our case he EK es is conduced using he firs difference of he variables of ineres, since he variables in levels are non-saionar. 1 3. Daa The variables analzed are he price level, wages, and he bilaeral Mexico-U.S. exchange rae. We obained daa on prices and wages for he nine divisions of he Mexican manufacuring secor and for for seven of heir for nine secors. 3 Price daa correspond o he producer price index for final goods. Wages refer o oal remuneraions. The exchange rae is he nominal Mexico-U.S. exchange rae. The source for all daa is he Ssem of Economic Indicaors of Banco de México. The variables are in consan erms and he range of he sample is Januar 1996 April 003. 4 The indicaor of openness was esimaed b compuing he raio beween foreign sales and oal sales for he divisions and secors of he manufacuring indusr. The daa were obained from he Monhl Indusrial Surve (EIM) provided b he Naional Insiue of Saisics, Geograph and Informaics (INEGI). Since he daa on prices, wages, and he exchange rae are more or less well known, we consrain daa presenaion o he openness measure. Tables 1 and show he variable for he divisions and he secors respecivel. Some characerisics of he daa are worh menioning. While foreign sales in he mos opened divisions, 8 and 9, are abou one hird of oal sales, he same are less han 10 percen in divisions 1 and 4. Tha is, here is a significan difference in he degree of exernal exposure a he division level. We also find significan differences in he degree of openness a he secor level. For example, while secor 14 has viruall no foreign sales, secor 54 repors a raio of foreign sales o oal sales of almos 75%. Hence, he variaion of his measure allows for a meaningful
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 34 analsis of he relaionship beween exernal ransior shocks o he price level and indusrial openness. 4. Empirical Analsis 4. 1. Sochasic Properies of he Series As i was menioned in he mehodolog secion, a necessar condiion o implemen he VE es for common ccles is he presence of coinegraion among he series considered. I follows ha he series mus be non-saionar o proceed wih he coinegraion es; and more specificall, he series mus be inegraed of order 1. To es for he order of inegraion of he series included in his analsis, we conduc convenional uni roo ess. 5 The resuls are presened in Table A1 in he Appendix. In he case of wages, he criical values a he 99% and 95% confidence level are 0.74 and 0.46 respecivel. Noice ha he null hpohesis is clearl rejeced for all series in levels, bu i is no rejeced for he firs differences. Hence, he series are inegraed of order 1. In he case of prices, he evidence is apparenl no as conclusive. The criical values are 0. and 0.15 a he 99% and 95% inerval. The null is rejeced in levels in all cases, bu no rejeced in he case of he prices for secors 11, 13, 14, 4, 5, 3, 35, 40, 41, 4, 44, 48, 51 and 5 in firs differences. For hese cases we conduced furher esing and concluded ha all of hem are in fac inegraed of order 1. 6 4.. Esimaions and Resuls 4..1 VE Common Ccles Esimaion Firs, we es for he exisence of coinegraion and hen implemen he VE es for hose cases for which coinegraion was deeced. Table 3 repors he resuls. 7 There is evidence of he exisence of coinegraion in divisions 1,, 5, 6, 8, and 9. In he case of division, he saisics sugges he exisence of wo coinegraing vecors. The signs of he coefficiens are posiive, resuls consisen wih heoreical posulaes. Tha is, here exiss a direc relaion beween prices, wages and he exchange rae. In mos cases, he magniude of he coefficiens is similar o hose found in previous sudies; he effec of he exchange rae on he price level is relaivel larger han he effec of wages. This is paricularl srong in division 5, where he magniude of he coefficien of he exchange rae is abou 6 imes greaer han he coefficien on wages. The onl excepion o his regulari is division 1, where he effec of wages on he price level appears o be greaer han he effec of he exchange rae. We now urn our aenion o he individual secors. Deailed resuls of he esimaions are presened in Table A in he Appendix. Table 4 presens a summar of he same. For division 1, we find evidence of coinegraion in secors 11, 1, 14, 18, 19, and 0. The elasiciies of he price level wih respec o wages and he exchange rae are qualiaivel consisen wih wha is found in he lieraure. In paricular, we find ha he response of he price level o he exchange rae is greaer han he same wih respec o wages. Moreover, he resuls for he shor-run
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 35 analsis indicae he exisence of comovemens for he variables in each one of hese secors. In he case of secor 0, he shor-run elasici is greaer hen 1. For division, onl in of he 5 secors, 7 and 8, did he es resuls indicae he exisence of a coinegraing relaionship. Again, he effec of he exchange rae is relaivel larger han he effec of wages. In he case of secor 8, he response of he price level o he exchange rae is more han double. Similarl, he resuls indicae common movemens for he series in boh secors. The magniude of he shor-run response of he price level o he exchange rae for secor 8 is greaer han one. For he secors of divisions 3, 4 and 5 we find evidence of coinegraion, and a relaivel greaer effec of he exchange rae on prices han he effec of wages. I is worh noing ha he long-run effec of he exchange rae on he price level in secors 38 and 4 is almos a 1: raio. Regarding he shor-run effec, he magniude of he coefficien of he exchange rae for secor 31 is he larges in he enire sample. The implicaion of his magniude is ha he response of he price level in his secor is 3 imes greaer han he shor-run variaion of he exchange rae. For divisions 6, and 7, coinegraion is found onl in secors. The coefficiens are consisen wih he paern previousl described. Evidence of shor-run snchronizaion is idenified in each of he wo secors. Finall, for division 8, he resuls show he exisence of coinegraion and common movemen in 7 of is 11 secors. The coefficiens of wages and he exchange for he long-run and shor-run are, again, consisen wih he evidence from oher divisions and secors. 4.. EK Common Feaures Esimaions We now implemen he EK echnique for he divisions and secors for which coinegraion was no deeced; divisions 3, 4, and 7. For division 3 we found no evidence of a meaningful relaionship in he shor-run beween prices, wages and he exchange rae. For divisions 4 and 7 he magniudes of he common feaure coefficiens corresponding o he exchange rae are.07 and.75, wih χ es saisics of 0.51 and 1.7 respecivel. Given ha he criical value for one degree of freedom is 3.84 a he 5% significance level, we do no rejec he null hpohesis of he exisence of common serial correlaion. Tha is, prices and he exchange rae share common cclical variaions. In oher words, ransior shocks in he exchange rae are significanl associaed wih shor-run movemens in prices. Table 5 presens he resuls for he secors for which we found evidence of significan shor-run relaionships beween prices, wages and he exchange rae. For hose secors no repored, he resuls obained in he esimaion of equaion (5) indicaed a non-significan associaion beween he variables. The resuls of he EK es indicae he exisence of a common feaure for secors 17, 6, 37, 41, 43, 44, 49 and 58. In all cases we idenif a posiive associaion beween prices, wages and he exchange rae. 8 Similar o he resuls repored for he VE es, in his case we find ha he ransior effec of he nominal exchange rae on he price level is greaer han he corresponding o wages. The highes coefficien was obained for secor 37, while he smalles is found in secor 44.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 36 4..3 Shor-run Dnamics and Openness In his secion we cener our aenion on evaluaing he relaionship beween he shor-run response of prices o he exchange rae and he degree of openness of he various divisions and secors of he manufacuring indusr. To ha end, we presen in Tables 6 and 7 he measure of openness and he exchange rae coefficien ha corresponds o he comovemen and common feaure vecors previousl esimaed. Table 6 presens he numbers for he divisions. 9 Ineresingl, for division 4, he leas open, we find he lowes comovemen coefficien, 0.07; and for division 8, one of he mos exposed, he larges coefficien, 7.71. However, here appears o be a non-monoonic relaionship beween he degree of openness and he magniude of he shorrun response of prices o he exchange rae. Tha is, noice ha i is no necessaril he case ha he greaer he degree of exernal exposure he greaer he responsiveness of prices o exchange rae shocks. Sronger evidence of he relaionship beween shor-run dnamics and openness is presened in Table 7, which repors he resuls b secor. In general, we find ha he greaer he degree of openness, he larger he magniude of exchange rae pass-hrough. Indeed, he simple correlaion coefficien beween he comovemen coefficiens series and he openness series is 0.5. To formall evaluae he associaion beween he magniude of ransior exchange rae shocks o prices and he degree of openness of an indusr, we implemen an exercise similar o ha found in Baqueiro e al. (003); who esimae he mehodolog emploed in Choudhri and Hakura (001) and Campa and Goldberg (00). The same considers he general regression: β + i i i = α + γx ε (6) i i where β is a vecor of pass-hrough coefficiens for i =1 o n unis and X a vecor of regressors specific o he i h i uni. In Baqueiro e al. (003) he elemens in X included average i inflaion, volaili of he exchange rae, and ne expors. In our case, we regress β agains he measure of openness for each secor in which a significan comovemen coefficien was idenified. The resuls of esimaing equaion (6) are shown in Table 8. We noice a magniude of γ equal o 0.0 wih a -saisic of 3.31. These numbers sugges a posiive and significan associaion beween he magniude of exchange rae pass-hrough and he degree of openness of various indusries. Alhough he magniude of he coefficien is relaivel small, he qualiaive relaionship beween he variables is in and of iself ineresing. Tha is, we find ha ransior shocks on he Mexico-U.S. bilaeral exchange rae have an asmmeric impac on indusr prices; prices of indusries wih a relaive low level of exernal openness seem o have low sensiivi o changes in he exchange rae. However, prices of indusries ha rade inensivel, respond more significanl o hese changes; as we menioned in he inroducor secion, his resul appears o be reasonable since one would expec ha a sudden change in he erms of rade would lead o a more significan change in he prices for indusries wih high rading acivi, relaive o prices of indusries wih lile or no rade.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 37 5. Conclusions In his documen we idenified he sochasic relaionship beween he price level, wages and he nominal bilaeral Mexico-U.S. exchange rae. Using daa from he 9 divisions of he manufacuring indusr in Mexico and 47 of is 49 secors, we find resuls ha are consisen wih previous pass-hrough sudies: here exiss a significan and posiive associaion beween hese variables in he long-run. The impac of he exchange rae on he price level appears o be greaer relaive o he impac of wages. For he shor-run analsis, we esimaed he common ccles mehodolog suggesed in Vahid and Engle (1993) and he common feaures mehodolog according o Engle and Kozicki (1993). I was shown ha ransior shocks on wages and he exchange rae influence he price level significanl. Moreover, we idenified an asmmeric response of he price level o exchange rae shocks, ha is, for indusries whose openness o foreign rade is relaivel high, he effec of he exchange rae on he price level is relaivel greaer han for hose indusries wih a low degree of openness. An ineresing exension of he exercise conduced here would be o analze he imporance of his asmmeric response on he pass-hrough o consumer prices. This is especiall ineresing for a counr like Mexico ha has experienced high levels of inflaion associaed wih currenc depreciaions. Reasonabl, we would anicipae ha, for highl concenraed indusries, he pass-hrough or producer prices o consumer prices would be greaer han for indusries wih low concenraion indexes. This is an exercise ha we pospone for fuure sudies. Endnoes * Deparmen of Economics and Saisics, California Sae Universi, Los Angeles and Universidad Auonoma de Baja California, rcasil@calsaela.edu. ** Economis, Banco de Mexico, jherrera@banxico.org. We acknowledge helpful conversaions and commens from Daniel Garcés, Kon Lai and Maureen Hicke. The usual disclaimer applies. 1. Applicaions of hese echniques include Issler and Vahid (001), Herrera (004), and Fragoso e al. (005).. Including hose menioned in he ex. 3. Secors 16 and 34 are excluded due o he lack of daa. Division 9 includes onl secor 59. 4. B choosing 1996 as he saring ear we avoid issues of srucural breaks in he daa due o he 1994 economic crisis. 5. We choose o implemen he es suggesed b Kwiakowski, Phillips, Schmid, and Shin (199). The null hpohesis for his es indicaes ha he series are saionar. I has been argued in he lieraure ha a es specifing he null hpohesis as such presens higher es power han ess saing a null hpohesis of non-saionari. See for example Paerson (000). We do no repor he resuls of he uni roo es on he exchange rae, as i is well known ha he series is inegraed of order one.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 38 6. I is well known ha uni roo ess exhibi weak power, and hence o derive robus resuls various specificaions mus be esimaed. In addiion o performing KPSS ess considering various bandwidhs, we esimaed Augmened Dicke Fuller and Philips-Perron ess. We do no repor he resuls for brevi, bu he show in fac ha he series are all inegraed of order 1. 7. We do no repor he sandard errors for he coefficiens of wages and he exchange rae, as we aemp o reduce he noaion and no overwhelm he reader wih numbers. These coefficiens are significan in all cases, as i is reasonable o suspec and consisen wih previous sudies of pass-hrough. Also, we normalize he vecors wih respec o he price level which we denoe in he ables (o avoid confusion wih he p for he p-value). 8. Noice ha for his es we repor he resuls from a wo-sage leas squares esimaion normalizing he cofeaure vecor wih respec o he price variable. 9. To simplif he erminolog on he Table we simpl label he column for comovemen and cofeaure coefficiens Comovemen Coefficien. Noice, however, ha in he case of divisions 4 and 7 we repor he coefficien corresponding o he cofeaure vecor found. References Allaannis, G. and J. Ihrig. 001. Exposure and Markups, Review of Financial Sudies, 14, 805-835. Baqueiro, A., A. Díaz de León Carrillo, and A. García. 003. Temor a la Floación o a la Inflación? La Imporancia del Traspaso del Tipo de Cambio a los Precios, Documeno de Invesigación, Banco de México. Campa, J. M. and L. S. Goldberg. 004. Exchange Rae Pass-Through ino Impor Prices, CEPR Discussion Papers No. 4391. Campa, J. M. and L. S. Goldberg. 00. Exchange Rae Pass-Through ino Impor Prices: A Macro or Micro Phenomenon? Federal Reserve Bank of New York, Saff Repors No. 149. Choudhri E. and D. Hakura. 001. Exchange Rae Pass-Through o Domesic Prices: Does he Inflaionar Environmen Maer? IMF Working Paper #01/194. Conesa, A. 1998. Pass-hrough del Tipo de Cambio de los Salarios: Teoría Evidencia para la Indusria Manufacurera, Documeno de Invesigación, Banco de México. De Brouwer, G. and N. R. Ericsson. 1998. Modelling Inflaion in Ausralia, Journal of Business and Economic Saisics, 16, 433-449. Durevall, D. 1998. The Dnamics of Chronic Inflaion in Brazil, 1968-1985, Journal of Business and Economic Saisics, 16, 43-43.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 39 Engle, R. F. and S. Kozicki. 1993. Tesing for Common Feaures, Journal of Business and Economic Saisics, 11, 369-396. Esquivel, G. and R. Razo. 00. Fuenes de la Inflación en México, 1989-000: Un Análisis Mulicausal de Corrección de Errores, Documeno de Trabajo. El Colegio de México. Fragoso, E. 003. Aperura Comercial Producividad en la Indusria Manufacurera Mexicana, Economía Mexicana, Nueva Epoca, 1, 5-38. Fragoso, E., J. Herrera, and R. Casillo-Ponce. 005. Sincronizacion del Empleo Manufacurero en Mexico Esados Unidos, Forhcoming, Economia Mexicana, Nueva Epoca. Garcés, D. 1999. Deerminación del Nivel de Precios la Dinámica Inflacionaria en México, Documeno de Invesigación, Banco de México. Herrera, J. 004. Business Ccles in Mexico and he Unied Saes: Do The Share Common Movemens? Journal of Applied Economics, 7, 303-33. Herrera, J., and R. Casillo-Ponce. 003. Trends and Ccles: How Imporan are Long Run and Shor Run Resricions? The Case of Mexico, Esudios Económicos, 18, 133-155. Issler, J.V., and F. Vahid. 001. Common Ccles and he Imporance of Transior Shocks o Macroeconomic Aggregaes, Journal of Monear Economics, 47, 449-475. Johansen, S. 1991. Esimaion and Hpohesis Tesing of Coinegraion in Gaussian Vecor Auoregressive Models, Economerica, 59, 1551-1580. Juselius, K. 199. Domesic and Foreign Effecs on Prices in an Open Econom: The Case of Denmark, Journal of Polic Modeling, 14, 401-48. Kwiakowski, D. P., C. B. Phillips, P. Schmid, and Y. Shin. 199. Tesing he Null Hpohesis of Saionari agains he Alernaive of a Uni Roo, Journal of Economerics, 54, 157-178. Magendzo, I. 1998. Inflación e Inceridumbre Inflacionaria en Chile, Economía Chilena, 1, 9-4. Paerson K. D. 000. Inroducion o Applied Economerics: A Time Series Approach. Palgrave Macmillan. Sock, J. H. and M.W. Wason. 1988. Tesing for Common Trends, Journal of he American Saisical Associaion, 83, 1097-1107. Vahid, F. and Engle, R. F. 1993. Common Trends and Common Ccles, Journal of Applied Economerics, 8, 341-360.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 40 Yang, J. 1997. Exchange Rae Pass-hrough in U.S. Manufacuring Indusries, The Review of Economics and Saisics, 79, 95-104.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 41 Table 1. Openness b Division Division % of Foreign Sales 1 8 0 3 19 4 3.5 5 17 6 14 7 6 8 34 9 34 Table. Openness b Secor Secor % of Foreign Sales Secor % of Foreign Sales 11 1 36 31 1 18 37 31 13 38 10 14 0 39 4 15 7 40 9 17 1 41 18 18 4 14 19 9 43 1 0 15 44 6 1 19 45 15 1 46 0 3 3 47 3 4 15 48 6 5 34 49 10 6 15 50 0 7 1 51 31 8 5 13 9 17 53 43 30 1 54 74 31 4 55 7 3 3 56 71 33 5 57 44 35 3 58 41 Table 3. Coinegraion and Common Ccle Tess Resuls b Division Coinegraion 1/ Coinegraion s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Division 1 40.89 9.5* ----- 1-0.67-0.0 0.15 0.00 6 0.00 1 1-0.04-0.11 División 55.37 16.8 3.5* 0 1-0.96 0.50 3 0.0 8 0.00 15 1-1.13-0.79 1 0-0.84 Division 3 7.54* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Division 4 8.49* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Division 5 43.76 13.6* ----- 1-0.35 -.07 0.07 0.00 6 0.00 1 1-0.06-0.6 Division 6 4.03 1.04* ----- 1-0.54-0.9 0.41 0.07 6 0.00 1 0 1-1.65 1 0-3.4 Division 7 18.84* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Division 8 61.07 10.10* ----- 1-0.49-0.17 0.15 0.00 6 0.00 1 1-0.19-7.71 Division 9 57.7 13.38* ----- 1-0.3-0.66 0.09 0.00 6 0.00 1 1-0.05-0.3 * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic. Common Ccles (VE) Cofeaure Vecores
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 4 Table 4. Coinegraion and Common Ccle Tess Resuls b Secor Secor Coinegraion Comovemen Secor Coinegraion Comovemen 11 (1,-0.6,-1.01) (1,-0.04,-0.09) 39 (1,-0.41,-1.40) (1, 0.00,-0.1) 1 ( 0.00,1,-1.57) (1, 0.00,-0.05) 40 (1, 0.00,-1.0) (1,-0.53,-0.57) 14 (1,-0.95,-1.44) ( 0.00,1,-0.0) 4 (1,-0.67,-1.70) (1, 0.00,-0.37) 18 (1,-0.16,-0.) (1, 0.00,-0.06) 45 (1,-0.77,-0.15) (1,-0.00,-.14) 19 (1,-0.44,-0.56) (1, 0.00,-0.17) 47 (1,-0.37,-0.83) (1, 0.00,-1.0) 0 (1,-0.6,-3.03) ( 0.00,1,-1.04) 48 (1,-0.35,-0.46) (1, 0.00,-0.87) 7 (1,-0.41,-1.9) (1,-0.18,-0.50) 50 (1,-0.46,-0.70) (1, 0.00,-0.34) 8 (1,-0.10,-.81) ( 0.00,1,-1.06) 51 (1,-0.17,-0.57) (1, 0.00,-0.95) 9 (1,-0.5,-0.55) (1,-0.16,-0.3) 5 (1,-0.41,-0.93) (1, 0.00,-0.36) 31 (1,-0.53,-0.53) ( 0.00,1,-.67) 53 (1,-0.4,-0.18) (1, 0.00,-0.81) 3 (1,-0.69,-0.95) (1, 0.00,-0.5) 55 (1,-0.10,-1.68) (1,-0.0,-0.66) 38 (1, 0.00,-1.81) (1,-0.31,-0.09) 56 (1,-0.43,-0.49) (1,-0.1,-0.36) Table 5. Common Feaures Tes Resuls b Secor Common Feauures Tes (EK) Null Hphhesis: Serial correlaion is commom for he series Secor Tes Saisics Criical Value Common Feaure Vecor 17 0.31 3.84 1-0.01-0.7 3 5.9 3.84 6 3.4 3.84 1-0.01-0.56 33 10. 9.48 35 8.6 3.84 36 6. 3.84 37 0.03 3.84 1-0.08-1.49 41 4.5 9.48 1-0.03-0.35 43 0.17 3.84 1-0.04-0.37 44 0.5 3.84 1-0.0-0.5 46 7.74 3.84 49 5.95 9.48 1-0.03-0.33 54 11.9 9.48 57.1 9.48 58 1.8 9.48 1-0.01-0.67 Table 6. Openness and he Shor-Run Response of Prices o Exchange Rae Movemens b Division Division Comovemen Openness Coefficien 1 0.11 8 0.79 19.6 4 0.07 3.5 5 0.6 17 6 3.4 14 7.75 6 8 7.71 34.18 9 0.03 34.4
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 43 Table 7. Openness and he Shor-Run Response of Prices o Exchange Rae Movemens b Secor Secor Comovemen Openness Secor Comovemen Openness Coefficien Coefficien 11 0.09 1 40 0.57 9 1 0.05 18 41 0.35 18 14 0.0 0 4 0.37 14 17 0.7 1 43 0.37 1 18 0.06 44 0.5 6 19 0.17 9 45 0.14 15 0 1.04 15 47 1. 3 6 0.56 15 48 0.87 6 7 0.5 1 49 0.33 10 8 1.06 50 0.34 0 9 0.3 17 51 0.95 31 31.67 4 5 0.36 13 3 0.5 3 53 0.81 43 37 1.49 31 55 0.66 7 38 0.09 10 56.36 71 39 0.1 4 58 0.67 41 Table 8. Regression Resuls Dependen Variable Independen Variables C Openness Pass-hrough Coefficien 0.59 0.01 (0.140) (0.006) Observaions: 3 R-squared: 0.7 DW:.19 Prob Fsa: 0.00
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 44 Appendix Table A1. Uni Roo Tess Prices Wages Division Levels Firs Difference Levels Firs Difference 1 0.306 0.06 1.190 0.4 0.307 0.144 1.171 0.74 3 0.91 0.031 1.19 0.016 4 0.1 0.186 1.184 0.356 5 0.484 0.080 1.174 0.381 6 0.56 0.070 1.194 0.079 7 0.500 0.069 1.174 0.79 8 0.558 0.137 1.188 0.338 9 0.545 0.09 1.18 0.087 Secor Levels Firs Difference Levels Firs Difference 11 0.69 0.661 1.170 0.95 1 0.307 0.141 1.18 0.07 13 1.0 0.369 1.175 0.30 14 1.139 0.644 1.153 0.359 15 0.06 0.109 1.315 0.500 17 0.847 0.093 1.01 0.45 18 1.9 0.4 1.188 0.189 19 0.304 0.089 1.191 0.53 0 0.93 0.155 1.186 0.500 1 0.333 0.05 1.183 0.116 0.30 0.067 1.198 0.303 3 1.179 0.079 1.334 0.104 4 1.058 0.91 1.167 0.189 5 0.80 0.95 1.110 0.6 6 0.301 0.055 1.174 0.37 7 0.301 0.136 1.177 0.314 8 0.97 0.19 1.159 0.087 9 0.314 0.146 1.179 0.073 30 0.89 0.038 1.194 0.11 31 1.134 0.00 1.173 0.339 3 1.171 0.50 1.189 0.31 33 1.185 0.93 1.165 0.34 35 1.010 0.640 1.18 0.500 36 0.189 0.187 1.17 0.9 37 1.135 0.153 1.170 0.7 38 0.303 0.081 1.18 0.65 39 0.96 0.080 1.177 0.148 40 1.140 0.681 1.160 0.70 41 1.098 0.453 1.03 0.78 4 1.193 0.514 1.187 0.039 43 0.96 0.083 1.178 0.177 44 1.136 0.453 1.191 0.111 45 0.308 0.085 1.187 0.44 46 0.54 0.076 1.171 0.36 47 0.998 0.11 1.178 0.4 48 1.131 0.57 1.195 0.0 49 1.177 0.097 1.03 0.36 50 0.307 0.066 1.194 0.356 51 1.03 0.7 1.168 0.365 5 1.094 0.79 1.186 0.410 53 0.300 0.083 1.186 0.30 54 0.89 0.090 1.154 0.96 55 0.91 0.108 1.179 0.141 56 0.95 0.167 1.18 0.8 57 0.89 0.13 1.191 0.19 58 1.166 0.049 1.189 0.500 59 0.95 0.103 1.18 0.087
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 45 Table A. Coinegraion and Common Ccle Tess Resuls b Secor Coinegraion 1/ Coinegraion Common Ccles (VE) Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 11 36.49 7.13* ----- 1-0.6-1.01 0.10 0.00 6 0.00 1 1-0.04-0.09 Secor 1 55.98 15.61 3.9* 0 1-1.57 0.41 3 0.00 8 0.00 15 1 0-0.05 1 0-0.95 Secor 13 19.17* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 14 45.57 15.31* ----- 1-0.95-1.44 0.19 0.01 6 0.00 1 0 1-0.7 1 0-4.6 Secor 15 17.79* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 17 0.4* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 18 43.97 5.39* ----- 1-0.16-0. 0.1 0.00 6 0.00 1 1 0-0.06 Secor 19 43.68 5.55* ----- 1-0.44-0.56 0.53 0.05 6 0.00 1 1 0-0.17 Secor 0 36.7 13.58 ----- 1-0.6-3.03 0.83 0.43 6 0.00 1 0 1-1.04 1 0-0.001 Secor 1 8.76* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 9.4* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 3 0.88* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic. Coinegraion 1/ Coinegraion Common Ccles (VE) Null Hpohesis : Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 4.47* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 5 19.45* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 6 4.77* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 7 53.86 9.6* ----- 1-0.41-1.9 0.17 0.00 6 0.00 1 1-0.18-0.5 Secor 8 40.86 14.97* ----- 1-0.10 -.81 0.4 0.01 6 0.00 1 0 1-1.06 1 0-0.90 * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 46 Null hpohesis: Coinegraion 1/ Coinegraion Common Ccles (VE) Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 9 35.18 5.09* ----- 1-0.5-0.55 0.46 0.00 6 0.00 1 1-0.16-0.3 Secor 30.60* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic. Coinegraion 1/ Coinegraion Common Ccles (VE) Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 31 9.81 14.83* ----- 1-0.53-0.53 0.38 0.4 6 0.00 1 0 1 -.67 1 0-1.7 Secor 3 30.06 1.85* ----- 1-0.69-0.95 0.39 0.18 6 0.00 1 0 1 11.18 1 0-0.5 * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic. Coinegraion 1/ Coinegraion Common Ccles (VE) Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 33.49* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 35 5.40* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 36 17.46* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 37 4.55 ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 38 59.55 16.39.80* 0 1-1.54 0.19 3 0.00 8 0.00 15 1-0.31-0.09 1 0-1.81 Secor 39 55.37 9.0* ----- 1-0.41-1.40 0.8 0.0 6 0.00 1 0 1 1.14 1 0 0.1 Secor 40 39.85 17.1.94* 0 1-1.49 0.06 3 0.00 8 0.00 15 1 0.53-0.57 1 0-1.0 Secor 41 7.77* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 4 38.7 14.55* ----- 1-0.67-1.70 0.35 0.31 6 0.00 1 0 1-1.6 1 0 0.37 * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic.
Casillo-Ponce and Hernández, Inernaaional Journal of Applied Economics, 5(1), March 008, 30-47 47 Coinegraion 1/ Coinegraion Common Ccle (VE) Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 43 4.7* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 44 5.94* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 45 36.37 9.14* ----- 1-0.77-0.15 0.16 0.00 6 0.00 1 1 0.00-0.14 * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic. Coinegraion 1/ Coinegraion Common Ccles (VE) Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 46 19.4* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 47 38. 14.68* ----- 1-0.37-0.83 0.33 0.09 6 0.00 1 0 1-1.48 1 0-1. * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic. Coinegraion 1/ Common Ccles Coinegraion Cofeaure s > 0 s > 1 s > r = 0 r = 1 r = w e P-val GL P-val GL P-val GL w e Secor 48 31.93 11.* ----- 1-0.35-0.46 0.44 0.06 6 0.00 1 0 1-0.15 1 0-0.87 Secor 49 4.4* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 50 48.05 8.41* ----- 1-0.46-0.70 0.10 0.03 6 0.00 1 0 1.0 0.50 1 0.0-0.34 Secor 51 3.00 10.43* ----- 1-0.17-0.57 0.60 0.53 6 0.00 1 0 1.0-0.04 1 0.0-0.95 Secor 5 35.06 4.06* ----- 1-0.41-0.93 0.6 0.01 6 0.00 1 0 1.0.30 1 0.0-0.36 Secor 53 47.7 9.01* ----- 1-0.4-0.18 0.91-0 6 0.00 1 0 1.0-1.44 1 0.0-0.81 Secor 54 4.87* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 55 31.96 10.8* ----- 1-0.10-1.68 0.44 0.00 6 0.00 1 1-0.0-0.66 Secor 56 68.70 10.39 ----- 1-0.43-0.49 0.5 0.00 6 0.00 1 1-0. -.36 Secor 57 7.00* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- Secor 58 13.77* ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- * Null Hpohesis is no rejeced a he 95 % confidence level ** Null Hpohesis is no rejeced a he 90 % confidence level. 1/ Trace Saisic.