Is there a pass-through from the international coff ee price to the Mexican coff ee market?

Abstract

We estimate the transmission of coff ee prices from the international market to the Mexican market for the period 2004-2019. Our estimates are obtained from a single equation conditional Error Correction Model (ECM). We estimate our proposed model for two overlapping periods: before a hypothesised break (2004-2013), and full sample (2004-2019). The results of the first estimation suggest that given a 1% increase in the international price of coff ee, the Mexican price increases by 0.9%, which is larger than previous estimates in the literature, but a finding which is consistent with the idea of more market integration due to free trade agreements. Furthermore, we find that Mexican coff ee production has no eff ect in the determination of local coff ee prices. Our model also implies a previously undocumented break in the long-run relationship between international and national prices, which started in 2015 but was statistically significant until 2017. This latter finding suggests that the international coff ee price pass-through to the Mexican economy has come to an end.