Munich Personal RePEc Archive

Milkshake Prices, International Reserves, and the Mexican Peso

Fullerton, Thomas and Torres, David (2005): Milkshake Prices, International Reserves, and the Mexican Peso. Published in: Frontera Norte , Vol. 17, No. 33 (2006): pp. 53-76.

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Menu prices from 13 international restaurant franchises that operate in both El Paso and Ciudad Juarez are utilized to examine the behavior over time of the peso/dollar exchange rate. Parametric and non-parametric tests indicate that the price ratio alone provides a biased estimator of the exchange rate. In addition to the multi-product price ratio, the empirical analysis also incorporates interst rate prity and balance of payment variables. The combination of unique microeconomic sample data with national macroeconomic variables illustrates one manner in which border economies provide information regarding the interplay of financial markets between Mexico and the United States.

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