The Mexican Peso Crisis
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Author | : Mr.Paul R. Masson |
Publisher | : International Monetary Fund |
Total Pages | : 36 |
Release | : 1996-01-01 |
Genre | : Business & Economics |
ISBN | : 1451929099 |
This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations. Estimation results indicate that investors appear to have seriously underestimated the risk of devaluation, despite early warning signals. The collapse of confidence that followed the December 20 devaluation may have been the result of a shift in the perceived commitment of the authorities to exchange rate stability.
Author | : Riordan Roett |
Publisher | : Lynne Rienner Pub |
Total Pages | : 130 |
Release | : 1996-01 |
Genre | : Business & Economics |
ISBN | : 9781555876678 |
Author | : Sebastian Edwards |
Publisher | : |
Total Pages | : 56 |
Release | : 1997 |
Genre | : Financial crises |
ISBN | : |
The Mexican crisis of 1994 raised, throughout the world, a number of questions about the sustainability -- and even the merits -- of the market oriented reform process in Latin America and other regions. Understanding the way events unfolded in Mexico during the early 1990s continues to be fundamentally important to assess the mechanics of currency crises. More importantly, perhaps, the eruption of the East Asian currency crises in the summer and fall of 1997 has raised the question of whether the lessons from Mexico have indeed been learned by policy makers, private sector analysts and international civil servants. More specifically, as a result of the recent events in South East Asia, many observers have argued that the international financial organizations -- the IMF and the World Bank -- and the governments of the advanced countries have failed to revamp the early warning system that was supposed to prevent a repetition of a Mexico-style crisis. This paper analyzes the causes behind the Mexican crisis, emphasizing the role of capital inflows, inflationary inertia and real exchange rate overvaluation. I also ask a number of questions regarding the predictability of the crisis: Should Wall Street analysts have known that things were getting out of hand? And if they did, why didn't they alert their clients? And, how much did officials at the US Treasury know about the depth of the Mexican problems? And, what was the role of the media? I conclude that although the US Treasury was fully aware of what was going on, most private sector analysts were unaware of the seriousness of the situation.
Author | : Anne Marie Goetz |
Publisher | : |
Total Pages | : |
Release | : 1996 |
Genre | : |
ISBN | : 9781858640341 |
Author | : Sebastian Edwards |
Publisher | : |
Total Pages | : 344 |
Release | : 1997 |
Genre | : Business & Economics |
ISBN | : |
The authors are uniquely positioned to provide valuable insights on both the Mexican crisis and the metamorphosis in the nature of financial debacles.
Author | : Nora Lustig |
Publisher | : |
Total Pages | : 46 |
Release | : 1995 |
Genre | : Devaluation of currency |
ISBN | : |
Author | : Paul R. Masson |
Publisher | : |
Total Pages | : 36 |
Release | : 2006 |
Genre | : |
ISBN | : |
This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations. Estimation results indicate that investors appear to have seriously underestimated the risk of devaluation, despite early warning signals. The collapse of confidence that followed the December 20 devaluation may have been the result of a shift in the perceived commitment of the authorities to exchange rate stability.
Author | : United States. Congress. Senate. Committee on Banking, Housing, and Urban Affairs |
Publisher | : |
Total Pages | : 676 |
Release | : 1995 |
Genre | : Business & Economics |
ISBN | : |
Author | : Jeffrey Sachs |
Publisher | : |
Total Pages | : 136 |
Release | : 1996 |
Genre | : Mexico |
ISBN | : |
We argue that allowing for the possibility of a self-fulfilling panic helps in understanding several features of the recent Mexican crisis. Self-fulfilling expectations became decisive in generating a panic only after the government ran down gross reserves and ran up short-term dollar debt. We present a simple model to explain how and why multiple equilibria can occur for some levels of reserves or debt, but not for others. Lastly, we argue that the imperfect credibility of Mexican exchange rate policy made it advisable to follow more contractionary fiscal and monetary policies in 1994. Our model formalizes the reasons why this is so.
Author | : Carol Wise |
Publisher | : Brookings Institution Press |
Total Pages | : 258 |
Release | : 2015-03-10 |
Genre | : Political Science |
ISBN | : 0815724772 |
This volume documents and explains the remarkable resilience of emerging market nations in East Asia and Latin America when faced with the global financial crisis in 2008-2009. Their quick bounceback from the crisis marked a radical departure from the past, such as when the 1982 debt shocks produced a decade-long recession in Latin America or when the Asian financial crisis dramatically slowed those economies in the late 1990s. Why? This volume suggests that these countries' resistance to the initial financial contagion is a tribute to financial-sector reforms undertaken over the past two decades. The rebound itself was a trade-led phenomenon, favoring the countries that had gone the farthest with macroeconomic restructuring and trade reform. Old labels used to describe "neoliberal versus developmentalist" strategies do not accurately capture the foundations of this recovery. These authors argue that policy learning and institutional reforms adopted in response to previous crises prompted policymakers to combine state and market approaches in effectively coping with the global financial crisis. The nations studied include Korea, China, India, Mexico, Argentina, and Brazil, accompanied by Latin American and Asian regional analyses that bring other emerging markets such as Chile and Peru into the picture. The substantial differences among the nations make their shared success even more remarkable and worthy of investigation. And although 2012 saw slowed growth in some emerging market nations, the authors argue this selective slowing suggests the need for deeper structural reforms in some countries, China and India in particular.