Three essays in international economics applied to the Mexican economy

This dissertation is composed of three essays that apply common tools for empirical analysis to issues in International Economics that are relevant to the Mexican Economy. The essays are presented in chronological order with respect to the time of their writing, although the third essay is closely related to the first one.;In the first essay of this dissertation, I measure the effects of the news generated by the approval process of the North American Free Trade Agreement (NAFTA), on the returns of Mexican stocks during 1993. In particular, I look at the relationship between the returns on the event dates and industry-specific comparative advantage. I find a strong positive correlation between the returns of an industry following the approval of the agreement, and that industry's trade surplus in 1993. The second essay is an econometric estimation of the (daily) yields of peso-denominated Negotiable Certificates of Deposit (NCD's) dependent on local latent factors and observable factors (the Mexican rates of inflation and growth), a foreign latent factor extracted from Eurodollar yields, and the Federal Reserve's Target rate as announced at FOMC meetings. No-Arbitrage constraints derived in the exponential-affine factor framework of Vasicek (1977) are always rejected by the peso yields. The latent factors derived form the Eurodollar and peso yields predict the log of the change in the exchange rate substantially better than interest rates. Finally, the third essay applies different estimation techniques to find structural change in Mexico's manufacturing industries in the period 1987--2001. In particular, I test for shifts in the relationship between production (and exports), the real exchange rate and the US industrial production index that take place in the years since the ratification of the North American Free Trade Agreement (NAFTA). Using cointegration-based techniques as well as analysis of out-of-sample rolling forecasts supports the finding of Garces-Diaz (2001) that no significant structural changes occurred after 1994 for imports. However I found evidence of a significant structural shift in the production of the Machinery industry, and substantially more evidence for structural breaks for the more disaggregated data.