We test the purchasing power parity hypothesis for the Mexican peso/US dollar real exchange rate using monthly data for 1969-2010. Results suggest that the real exchange rate reverts to a changing mean. These mean shifts can be explained by liberalization policies implemented during the 1980s and 1990s that reduced trade barriers in the Mexican economy. Such policies modified the tradable/non-tradable goods composition of the price index producing mean shifts in the real exchange rate associated with PPP. © 2012 Springer-Verlag Berlin Heidelberg.