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The main purpose of the study is to study the trends in the improvement of exchange rates in the country. The research will be carried out by several methods, the first of which is the method of analysis. The second method is a comparative method. The methodological basis of the research is the systematic and historical approaches of local and foreign authors mentioned in the scientific literature, as well as in legislative documents. The limitation of the study is that the national literature on the subject is relatively small. The practical significance of the study is the study of the mechanism for selecting monetary policy in the Republic of Azerbaijan and assessing its impact on the exchange rate regime. Key words: macroeconomics, currency intervention, Central Bank, exchange rate

Thailand FDI allows countries to enter new markets through imports of goods at lower prices and access to foreign technology because FDI strengthens the economy and increases competition in the era of globalization. Therefore, concerning economic development and regional issues in the context of developing countries Thailand is one of the emergings. Identifying the key factors involved in TFDI is critical for sustainable growth. This study focuses on the factors that define TFDI to CLMV countries using macroeconomic analysis. Quantitative analysis using multiple regression equations on 15-year time series data, during 2005-2019. The results showed that GDP factors, foreign exchange rates, inflation, the proportion of working-age workers to the country's population, and international cooperation are the major driver of Thailand's outward FDI investment.

The profitability of an international economical contract is directly linked to the currency determined in it and to the risks of potential foreign exchange variations. The length of the contract and the political and economical stability of the concerned country define the magnitude of the risk. The author explains various means available to the contracting parties to minimize the currency risk: taking into consideration Argentina, in many ways an unstable country, he explains the elements that must be taken into account for the selection of the payment currency and the drafting of the contract.He then itemizes the clauses that can be inserted in a contract so as to insure that it will be effectively executed in the determined currency while underlining that many of these clauses do not have any effect due to the legislation of certain countries., La rentabilité économique d’un contrat international est directement liée à la monnaie qui y est stipulée et aux risques de variations de taux de change qui peuvent survenir. L’ampleur du risque dépend de la durée du contrat et de la stabilité des pays impliqués. L’auteur analyse divers moyens à la disposition des parties au contrat pour minimiser le risque monétaire. En prenant l’exemple de l’Argentine, pays instable à plusieurs niveaux, il explique les éléments qui doivent être considérés par les parties dans le choix de la monnaie de paiement et dans la rédaction du contrat.Il détaille ensuite les clauses qui peuvent être insérées dans un contrat pour s’assurer qu’il sera bien exécuté dans la devise stipulée, en soulignant pertinemment les limites imposées à l’application de telles clauses par les lois de certains pays.

Purpose: The paper aims to elaborate the principles and the authors’ original method to choose target markets of textile and fibers manufacturers when internationalizing their economic activity. The decision on foreign target markets must be very reasonable as having chosen a new foreign market the company put a lot of resources into it. Design/Methodology/Approach: The authors suggest to take into account three factors for the most perspective foreign markets for export interventions. The cash flow in foreign trade by specific materials (textiles and fibers) was estimated by each country – to select the countries depending on textiles and fibers import. Among those countries the markets' attractiveness was estimated by their size and growth intensity. After that general opportunities of doing business by Russian companies in the country were estimated using a complex index calculated on a basis of data characterizing import from Russia volume and its dynamics, transport accessibility, GDP Volume and Dynamics. Findings: The paper contains a set of data characterizing the most perspective countries for Russian textile companies export expansion – Cambodia, Bangladesh, Sri Lanka, Iran, Saudi Arabia, Morocco, Nicaragua, Viet Nam. Central and Eastern European countries (Romania, Poland, Slovenia), United Kingdom, USA, Canada are attractive from a point of view of potential prospects of business development in the country, however cooperation with them may be difficult due to some serious barriers on entering the markets. Practical Implications: The matrix can be used in managerial practices of different companies oriented on their international business activities expanding. The results of the new methods implementation (the list of the most perspective foreign markets) can be used by for management of the Russian textile companies oriented on foregn markets. Originality/Value: The paper contains a new method of foreign target markets choosing and a new strategic instrument – the matrix of export expansion markets choosing., peer-reviewed

Each day, more than $1.2 trillion worth of foreign exchange changes hands around the globe, an amount that far exceeds the daily value of world trade. Approximately 83 percent of these transactions involve U.S. dollars, but not all involve U.S. citizens.

The purpose of this study was to detect latent periodicity in the presence of deletions or insertions in the analyzed data, when the points of deletions or insertions are unknown. A mathematical method was developed to search for periodicity in the numerical series, using dynamic programming and random matrices. The developed method was applied to search for periodicity in the Euro/Dollar (Eu/$) exchange rate. The presence of periodicity within the period length equal to 24 hours and 25 hours, in the analyzed financial series, was shown. Periodicity can be detected only with insertions and deletions. The results of this study show that periodicity phase shifts, depend on the observation time. A period of 24 hours is a common phenomenon for foreign exchange rates, indices and stocks of different companies. We show it for the Bank of America and Microsoft stocks, S&P500 and NASDAG indexes and for the gold and silver prices as examples. The reasons for the existence of the periodicity in the financial ranks are discussed. The results can find application in computer systems, for the purpose of forecasting exchange rates.

This paper examines the finance-growth nexus in Russia with the vector autoregression model, taking oil prices and foreign exchange rates into account. The analyzed period is from 1999 through 2008 (Subperiod 1) and from 2009 through 2014 (Subperiod 2). The results for Subperiod 1 suggest that there is causality from economic growth to money supply and bank lending, which implies demand-following responses. The results for Subperiod 2 show that economic growth Granger causes bank lending while there is no causality from money supply to economic growth, which could be related to the dramatic decrease in the amount of intervention in foreign exchange markets.

Brazil has invested substantially in encouraging international air passenger traffic. The results, however, have fallen far short of expectations, raising the question of what factors should be considered in policy-making to encourage the development of international passenger air traffic in Brazil. Based on indications in the literature, this study explores relations between international trade-related factors and international air passenger movement in Brazil, using the Granger causality methodology. The study results show evidence that changes in international trade indicators hold a long-term relationship with, and precede, variations in international air passenger movement. These indicators also show significant impact on the evolution of international air passenger movement in Brazil. The study indicates a need to rethink policy and may serve as a point of reference for other developing countries.

In this study we present an analytical framework providing guidelines for discussions and expositions on the various possible transmission mechanisms of the impacts of the global crisis on the Chinese economy. While the crisis had discernible impacts on its finance, the main channels through which China felt the impacts were trade and trade related ones. One channel is related to the diversification of export markets. Moreover, trade is closely related to the financial system. The global crisis has affected the Chinese economy by triggering worsening conditions of the financial system. Also, foreign investment has played a crucial role after the hit of the global crisis. Still one more important channel is associated with the susceptibility of the economy to the shocks of foreign exchange rates.

China overtook Japan in 2010 as the second largest economy in the world, with a GDP of 40.1 trillion yuan in RMB (the equivalent of about US$5.88 trillion), trailing only the United States. What is behind China’s surging GDP is its status as the world’s largest exporter, second-largest importer, biggest holder of foreign reserves, and second-biggest manufacturer. (In fact, China ranks tops globally as maker of many manufactured products.) In terms of per-capita GDP (29,992 yuan in RMB), however, China lags behind many other countries and ranks outside of the top 100 because of its enormous population. In addition, when considering the fluctuations of foreign exchange rates, there is little room for elation in emerging as the world’s No. 2 economy, let alone inflated optimism over its aggregate GDP. That being said, it should be noted that China, as the second-largest economy, promises a greater potential for growth than higher-ranking smaller economies, in terms of GDP per capita. To accomplish the transformation from a large economy to a strong economy, it is imperative for China to search for new growth engines and to reorient its economy.

The degree of exchange-rate pass-through to import prices is low. An average pass-through estimate for the 1980s would be roughly 50 percent for the United States implying that, following a 10 percent depreciation of the dollar, a foreign exporter selling to the U.S. market would raise its price in the United States by 5 percent. Moreover, substantial evidence indicates that the degree of pass-through has since declined to about 30 percent. Gust, Leduc, and Vigfusson (2010) demonstrate that, in the presence of pricing complementarity, trade integration spurred by lower costs for importers can account for a significant portion of the decline in pass-through. In our framework, pass-through declines solely because of markup adjustments along the intensive margin. In this paper, we model how the entry and exit decisions of exporting firms affect pass-through. This is particularly important since the decline in pass-through has occurred as a greater concentration of foreign firms are exporting to the United States. We find that the effect of entry on pass-through is quantitatively small and is more than offset by the adjustment of markups that arise only along the intensive margin. Even though entry has a relatively small impact on pass-through, it nevertheless plays an important role in accounting for the secular rise in imports relative to GDP. In particular, our model suggests that over 3/4 of the rise in the U.S. import share since the early 1980s is due to trade in new goods. Thus, a key insight of this paper is that adjustment of markups that occur along the intensive margin are quantitatively more important in accounting for secular changes in pass-through than adjustments that occur along the extensive margin.

This paper builds a model of two types of Chinese exports, those processed and assembled largely from imported inputs ( processed exports) and non-processed exports. Based on this model, the sensitivity of Chinese exports to exchange rate changes is empirically examined. Unlike previous work, the estimation period includes the net real appreciation of the renminbi that has occurred over the past three years. The results show that greater exchange rate appreciation dampens export growth, both for non-processed and processed exports, with the estimated cumulative price elasticity being substantially greater than unity. When the source of the increase in the Chinese real exchange rate is appreciations against the currencies of other emerging Asian trading partners, the effect on processing exports is positive but insignificant, while the effect on non-processing exports is significantly negative. By contrast, when the source of the increase in the Chinese real exchange rate is appreciation against China's advanced-economy trading partners, the effects on both types of exports are negative. These results are consistent with the predictions of the theoretical model. Counterfactual simulations based on the estimated model strongly suggest that if the trade-weighted real renminbi had appreciated at an annual rate of 10 percent per quarter since mid-2005, Chinese real exports would have been roughly 30 percent lower today. Thus greater exchange rate flexibility could contribute to lowering China's huge trade surplus through restraining growth of exports.

Over the past twenty years, U.S. import prices have become less responsive to the exchange rate. We propose that a significant portion of this decline is a result of increased trade integration. To illustrate this effect, we develop an open economy DGE model in which trade occurs along both the intensive and extensive margins. The key element we introduce into this environment is strategic complementarity in price setting. As a result, a firm's pricing decision depends on the prices set by its competitors. This feature implies that a foreign exporter finds it optimal to vary its markup in response to shocks that change the exchange rate, insulating import prices from exchange rate movements. With increased trade integration, exporters have become more responsive to the prices of their competitors and this change in pricing behavior accounts for a significant portion of the observed decline in the sensitivity of U.S import prices to the exchange rate.

The article examines foreign exchange exposure in emerging markets. The authors offer a holistic approach to minimizing its effects on multinational business enterprises. Qualitative research was u...

This paper focuses on: (1) how a select set of financial and economic factors could set the path for interest rates and foreign exchange rates, and (2) whether the resultant realized interest and exchange rates would be in harmony or in disarray. Using post-euro data for the EU and the US, an array of monetary rules is examined. In particular, the paper investigates whether the original and the extended Taylor rules provide an explanation of the dynamics of the EU monetary system since the inception of the euro. Our findings indicate that the EU and the US monetary responses are not the same and that exchange rates play a significant role.

An attempt is made to estimate the influence of the currency and oil factors on the volumes and distribution of investment flows to Russian regions. The emphasis is on a correlation analysis of the impact of changes in the values of nominal foreign exchange rates (the US dollar and the Euro) and the world prices of Urals crude oil on the dynamics of Russian and foreign investments in different regions and regional groups of Russia over a ten-year period (1995–2005). Significant intergroup differences in the degree of investment susceptibility to the currency and oil factors are brought to light, resulting from the country’s heterogeneous economic space, its mineral and labor resources, uneven development of its transport infrastructure, the energy spent by local authorities in attracting investments, etc.

A commodity-price boom is under way. What does this boom mean for inflation in countries with substantial net commodity exports? The answer depends on movements in commodity prices, changes in foreign exchange rates and the determinants of domestic price inflation. We estimate equations to provide indications of the strength of each of these forces for both Australia and Canada. The results show that world commodity prices move pro-cyclically with world industrial production and that rates of change in commodity prices are directly related to domestic inflation in both countries. However, there is an offsetting impact of exchange-rate changes, which is strong enough in the case of Australia, but not Canada, to substantially eliminate the inflationary impact of a commodity-price boom.

To investigate to what extent transaction mechanism matters, we examine the daily returns of 29 foreign exchange rates in the New York market. This paper finds that the day-of-the-week effect existed in the 1980s for some, not all, currencies. The fact that the day-of-the-week effect existed for only some currencies suggests that the US transaction mechanism alone cannot explain the anomaly. Furthermore, this paper finds that the day-of-the-week effect disappears for almost all currencies in the 1990s. This latter result is consistent with previous studies on anomalies in the stock markets.

Consumers living near the U.S.-Canada border can shift their expenditures between the two countries, so real exchange rate fluctuations can act as demand shocks to border areas' retail trade industries. Using annual county-level data, we estimate the effects of real exchange rates on the number of establishments and their average payroll in border counties for four retail industries. In three of the four industries we consider, the number of operating establishments responds either contemporaneously or with a lag of one year to real exchange rate movements. For these industries, the response of retailers' average size is less pronounced. The rapid response of net entry is inconsistent with any model of persistent deviations from purchasing power parity that depends on retailers' costs of changing nominal prices.

We explore whether increases in China’s exports reduce exports of other emerging Asian economies. We find that correlations between Chinese export growth and that of other emerging Asian economies are actually positive (though often not significantly so), even after controlling for the effects of income growth of trading partners and real effective exchange rates. We also present results from a VAR estimation of aggregate trade equations on the relative importance of foreign income and exchange rates in the determination of Asian export growth. An important finding is that, while exchange rates do matter for export performance, the income growth of trading partners matters even more. In addition, we examine specific products and find evidence that a considerable shifting of trade patterns is taking place, consistent with a ‘flying geese’ pattern in which China and ASEAN-4 move into the product space vacated by the NIEs. Overall, our results suggest that China and emerging Asia are both comrades and competitors. Disclaimer: The views expressed here are those of the authors and should not be attributed to the Federal Reserve Board, the Federal Reserve Bank of Chicago, or the International Monetary Fund.

According to McCulloch, Longfield and Loyd, a free banking system is always prone to overissues of bank notes. Their view is supported by the free banking era in Switzerland (1826-1907), where, due to competitive pressures within the banking community and the absence of note-brand loyalty on the part of the general public, overissues (causing a rise in the foreign exchange rates above the upper gold and silver points) finally became permanent. Free competition, therefore, had to give way to collusive action and, in 1907 (with the open consent of the issuing banks), to the establishment of the Swiss National Bank.

This paper examines the integration of the Australian stock market with its two leading trading partners, the US and Japan. In investigating the extent of integration, this study takes into account the interdependence between foreign exchange rates and stock prices, since exchange rates influence international competitiveness of firms, and, via interest rates, the cost of capital. The results indicate that there was a stable long-run relationship among the Australian, US and Japanese markets prior to the Asian crisis but that this relationship disappeared in the post-Asian crisis period. An analysis of the short-run dynamic linkages among markets suggests that, following the Asian crisis, the US influence on the Australian market diminished while the influence of Japan remained at a modest level. Furthermore, the impulse response analysis indicates only a contemporaneous transmission of shocks from one market to other markets. Confidence intervals for impulse responses are estimated using the bootstrap-after-bootstrap method.

This article examines the extent of cross-country spillover effects with regard to the foreign exchange rates in an increasingly integrated world economy. Vector Autoregression methodologies are used to identify the spillover effects of one exchange rate changes on other exchange rates. Analysis of monthly data over 1973–1999 period for six OECD countries (Canada, France, Germany, Great Britain, Italy, and Japan) does indicate the existence of strong spillover effects or interdependence among the exchange rates for most of the countries considered in this study.

The leading Polish exporting firms were analysed in the context of a foreign exchange rate exposure. The exchange rates were selected on a criterion of the size of a trade with foreign partners. It could have been expected that for an exporter the stock return is positively linked with a change in a foreign exchange rate. The analysed sample consists of the data from the second half of 2004 to the beginning of 2015. It has been found that EUR, USD and CZK exchange rates have a negative impact, whereas GBP and RUB exchange rates have a positive impact.

Large exporters are simultaneously large importers. In this paper, we show that this pattern is key to understanding low aggregate exchange rate pass-through as well as the variation in pass-through across exporters. First, we develop a theoretical framework that combines variable markups due to strategic complementarities and endogenous choice to import intermediate inputs. The model predicts that fi rms with high import shares and high market shares have low exchange rate pass-through. Second, we test and quantify the theoretical mechanisms using Belgian fi rm-product-level data with information on exports by destination and imports by source country. We confi rm that import intensity and market share are the prime determinants of pass-through in the cross-section of fi rms. A small exporter with no imported inputs has a nearly complete pass-through of over 90 percent, while a fi rm at the 95th percentile of both import intensity and market share distributions has a pass-through of 56 percent, with the marginal cost and markup channels playing roughly equal roles. The largest exporters are simultaneously highmarket-share and high-import-intensity fi rms, which helps explain the low aggregate pass-through and exchange rate disconnect observed in the data.

We explore deviations from short-run purchasing power parity across European cities, attempting to move beyond a "first-generation" of papers that document very large border effects. We document two very distinct types of border effects embedded in relative prices. The first is a "real barriers effect," caused by various barriers to market integration. The second is a sticky-consumer-price cum volatile exchange-rate effect. Both are shown to be important empirically, the second type especially so. We argue that the two effects are very different from each other. For the first type of effect, it is clear that border effects imply deadweight welfare losses. We argue that while the second type of border effect could be eliminated with fixed exchange rates, welfare is not necessarily increased.

This paper reviews the some of the various "Theories explaining financial sector FDI", Microeconomic framework, Importance and barriers to FDI and Diverse economic environment. We will also be discussing the Risk management challenges, dynamic foreign exchange rates and the opportunities of developing Retail marketing in India. From the review, of the financial management and Macroeconomic and risk diversification theories would seem particularly well-suited to explain this reality. The financial management importance helps the microeconomic framework to entitle the GDP with the FDI resources.

We show that an appreciation of the yen against the dollar and against the Asian currencies significantly increases Japanese foreign direct investment (FDI) in Asia. Also, a depreciation of the Asian currencies against the dollar, while not significantly affecting the FDI in aggregate manufacturing, have a significant positive impact in the export-oriented electrical machinery sector. The labor productivity differential has a significant impact on FDI in most sectors but the direction of the effect varies across sectors. Also, there is evidence that a higher import tariff rate or wage rate in the host country significantly decreases Japanese investment in Asia.

The paper aimed to examine the causes of fluctuations in oil prices that may be due to fluctuating foreign exchange rates and also to investigate the same relationship existence between the two variables. The present study has been conducted in OPEC nations as these are the nations which play an important role in determining oil prices, though oil prices have been taken from NYMEX WPI from period 1997-2011. The results were examined and analyzed by using Toda and Yamamoto causality approach (1995) and mixed results were found.

In this study, the relationship between movements in the exchange rates of five commodity currencies (Australia, Canada, Chile, China, and South Africa) in terms of the United States Dollar (USD) and the spot USD copper price was analysed. Correlation and regression analysis (including the use of lagged variables) was used to investigate these relationships. It was found that four of the five commodity currency exchange rates have a strong co-movement relationship with copper price (i.e. the Australian Dollar, Canadian Dollar, Chilean Peso, and the South African Rand). The only exchange rate that does not have a co-movement relationship with copper prices is the Chinese Yuan. This article is based on a master’s minor dissertation study.

The evidence for a productivity-based explanation for real exchange rate behavior of East Asian currencies is examined. Using sectoral output and employment data, relative prices and relative productivity levels are calculated for China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. Time series regressions of the real exchange rate on relative prices indicate a role for relative prices for Indonesia, Japan and Korea. When examining real exchange rates and relative productivity ratios, one finds a relationship for Japan, Malaysia, the Philippines. Only when augmenting the regressions with real oil prices significant relationships are obtained for Indonesia and Korea. Relative per capita income, a proxy for preferences towards services, does not appear to be an important determinant in this sample. Panel regression results are slightly more supportive of a relative price view of real exchange rates. However, the panel regressions incorporating productivity variables, as well as other demand side factors, provide less encouraging results, except for a subset of countries (Indonesia, Japan, Korea, Malaysia and the Philippines). Surprisingly, neither government spending nor the terms of trade appear to be a determinant of regional real exchange rates.

With the advent of chain calculations for the U.S. national income and product accounts, it seems reasonable to contemplate using the chain approach for other indexes, such as trade-weighted exchange rates (TWEXs). A fundamental criticism of measuring the growth of gross domestic product by a fixed-base-year method is that the estimates are highly sensitive, especially when the economy?s structure is changing dramatically, to the arbitrary choice of the base year. Such a criticism can be levied against TWEXs. In fact, even TWEXs constructed using a Paasche index rather than a Laspeyres index have problems related to base periods. We examine theoretically and empirically the use ofa chain TWEX in relation to two well-known TWEX indexes: the Federal Reserve Bank of Atlanta index, which uses a Laspeyres index, and the Federal Reserve Bank of Dallas index, which uses a Paasche index. The choice of base year alters the behavior ofthe dollar in these two indexes. We contrast this result with the behavior of the dollar in comparable chain TWEXs, where the base year sensitivity is absent. Our results indicate that developers of TWEXs, as well as those revising TWEXs, should consider a chain approach. Furthermore, users need to be aware of the sensitivity of TWEXs to changes in either the base period for trade weights or the reference base period for exchange rates

The development of capital markets around the world has given rise to growing interest in how the markets are linked. This study, using the Dow Jones & Company country and industry indexes, found that the United States has statistically significant one-day leads over markets in Europe and Asia, that no significant leads extend beyond one day, that changes in foreign exchange rates contribute to the links among markets, and that the industries designated “global” are significantly more sensitive to leads than are “local” industries. Lead/lag relationships may allow yield enhancement, possibly even arbitrage, through trading futures in some markets.

The uncertainty caused by the exchange rate crises of 1992-93 led to two questions: Is monetary union still feasible? What strategies are best for achieving convergence according to the Maastricht criteria? This article addresses these questions by examining the progress made by the five major European Union countries in satisfying the Maastricht criteria and the two crucial impediments facing these countries--disparities in real exchange rate convergence and fiscal imbalances--and alternative strategies to deal with these impediments. Overall, our analysis suggests that the prospects for monetary union are less gloomy than many analysts believe. We show that wide bands have been useful in limiting competitive disparities. We also argue for more general fiscal criteria set forth in the Maastricht treaty. Under these more general criteria, countries that reversed the path of debt accumulation and achieved a sustainable deficit would be admitted to the monetary union. Finally, under a multispeed transition, a small group of countries will form the initial core of the monetary union, and other countries will join over time.

This study examines the impact of macro-economic factors on the foreign exchange rates between USA and four big emerging countries: India, Mexico, Brazil and China for the period of 2005 to 2014. This study uses Enter and Stepwise multiple regression methods to investigate the impact of market fundamental on the exchange rates. The empirical findings reveal that the macro-economic factors significantly predict and influence the exchange rates between USD/CNY (US dollar/Chinese yuan), USD/INR (US dollar/Indian rupee), USD/BRL (US dollar/ Brazilian real), and USD/MNX (US dollar/Mexican pesos). It is crucial to emphasize that the macroeconomic policies have to be implemented in order to stabilize and reduce the exchange rates volatilities.

The Japanese yen appreciated strongly and rapidly against other major currencies in the wake of the massive March 11, 2011, Tohoku earthquake. High volatility and disorder in financial markets prompted the G-7 authorities to jointly intervene to weaken the yen. This episode resembled the two most recent G-7 coordinated interventions: the June 1998 effort to strengthen the yen and the September 2000 effort to strengthen the euro. Exchange rates reacted strongly and quickly to these three interventions, moving 3 to 4 percent in the desired direction within 30 minutes of the announcement and exhibiting lower volatility in the following days. G-7 authorities have used intervention very sparingly since 1995, yet the March 2011 policy action is a reminder that it can be used to calm markets and move the exchange rate in the desired direction. Intervention has become much less common but more successful.

This paper utilizes a unique high-frequency database to measure how exchange rates in nine emerging markets react to macroeconomic news in the U.S. and domestic economies from 2000 to 2006. We find that major U.S. macroeconomic news have a strong impact on the returns and volatilities of emerging market exchange rates, but many domestic news do not. Emerging market currencies have become more sensitive to U.S. news in recent years. We also find that market sentiment could sway the impact of news on these currencies systematically, as good (bad) news seems to matter more when optimism (pessimism) prevails. Market uncertainty also interacts with macroeconomic news in a statistically significant way, but its role varies across currencies and news.

Using a threshold autoregressive model, we confirm the presence of nonlinearities in sectoral real exchange rate (SRER) dynamics across Mexico, Canada and the US in the pre-NAFTA and post-NAFTA periods. Measuring transaction costs using the estimated threshold bands, we find evidence that Mexico still faces higher transaction costs than their developed counterparts. Trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries. Other determinants of transaction costs are distance and nominal exchange rate volatility. Our results show that the half-lives of SRERs shocks, calculated by Monte Carlo integration, imply much faster adjustment in the post-NAFTA period.