Firm dynamics, investment and debt portfolio: balance sheet effects of the Mexican crisis of 1994
AbstractWe build a partial equilibrium model of firm dynamics under exchange rate uncertainty. Firms face idiosyncratic productivity shocks and observe the current level of the real exchange rate each period. Given their current level of capital stock, firms make their export decisions and choose how much to invest, subject to a cost of adjustment in capital. Investment is financed through one period loans from foreign lenders. The interest rate charged by each lender is set as to satisfy an expected zero-profit condition. The model delivers a distribution of firms over productivity, capital stocks, and debt portfolios, as well as an exit rule. We calibrate the model using data from a panel of Mexican firms, from 1991 to 2000, and analyze the effect of the 1994 crisis on these variables. As a result of the real exchange rate depreciation, the model predicts: (i) a large fall in investment, (ii), a decrease in average productivity, (iii) an increase in exports, (iv) a reduction in the number of firms due to default and (v) a debt portfolio reallocation towards domestic debt. These real effects are consistent with the evidence for the Mexican crisis.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 75 (2004)
Issue (Month): 2 (December)
Contact details of provider:
Web page: http://www.elsevier.com/locate/devec
Other versions of this item:
- Sangeeta Pratap & Carlos Urrutia, 2004. "Firm Dynamics, Investment, and Debt Portfolio: Balance Sheet Effects of the Mexican Crisis of 1994," Working Papers 0406, Centro de Investigacion Economica, ITAM.
- Sangeeta Pratap & Carlos Urrutia, 2004. "Firm Dynamics, Investment, and Debt Portfolio: Balance Sheet Effects of the Mexican Crisis of 1994," NBER Working Papers 10523, National Bureau of Economic Research, Inc.
- Sangeeta Pratap & Carlos Urrutia, 2004. "Firm Dynamics, Investment and Debt Portfolio: Balance Sheet Effects of the Mexican Crisis of 1994," 2004 Meeting Papers 462, Society for Economic Dynamics.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001.
"International and domestic collateral constraints in a model of emerging market crises,"
Journal of Monetary Economics,
Elsevier, vol. 48(3), pages 513-548, December.
- Ricardo Caballero & Arvind Krishnamurthy, 2000. "International and Domestic Collateral Constraints in a Model of Emerging Market Crises," NBER Working Papers 7971, National Bureau of Economic Research, Inc.
- Ignacio Lobato & Sangeeta Pratap & Alejandro Somuano, 2004.
"Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis,"
0405, Centro de Investigacion Economica, ITAM.
- Pratap, Sangeeta & Lobato, Ignacio & Somuano, Alejandro, 2003. "Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 450-471, December.
- Aaron Tornell & Frank Westermann & Lorenzo Martinez, 2004.
"Nafta and Mexico Less-than-Steller Performance,"
UCLA Economics Working Papers
833, UCLA Department of Economics.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000.
"A simple model of monetary policy and currency crises,"
European Economic Review,
Elsevier, vol. 44(4-6), pages 728-738, May.
- Philippe AGHION & Philippe BACCHETTA & Abhijit BANERJEE, 1999. "A Simple Model of Monetary Policy and Currency Crises," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 9914, Université de Lausanne, Faculté des HEC, DEEP.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999. "A Simple Model of Monetary Pollicy and Currency Crises," Working Papers 99.05, Swiss National Bank, Study Center Gerzensee.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
- Thomas F. Cooley & Vincenzo Quadrini, 1999.
"Financial Markets and Firm Dynamics,"
99-14, New York University, Leonard N. Stern School of Business, Department of Economics.
- Hoyt Bleakley & Kevin Cowan, 2008.
"Corporate Dollar Debt and Depreciations: Much Ado About Nothing?,"
The Review of Economics and Statistics,
MIT Press, vol. 90(4), pages 612-626, November.
- Hoyt Bleakley & Kevin Cowan, 2002. "Corporate dollar debt and depreciations: much ado about nothing?," Working Papers 02-5, Federal Reserve Bank of Boston.
- Hoyt Bleakley & Kevin Cowan, 2005. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," Research Department Publications 4411, Inter-American Development Bank, Research Department.
- Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "Decades lost and found: Mexico and Chile since 1980," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-30.
- Martin Schneider & Aaron Tornell, 2004.
"Balance Sheet Effects, Bailout Guarantees and Financial Crises,"
Review of Economic Studies,
Wiley Blackwell, vol. 71, pages 883-913, 07.
- Martin Schneider & Aaron Tornell, 2000. "Balance SHeet Effects, Bailout Guarantees and Financial Crises," NBER Working Papers 8060, National Bureau of Economic Research, Inc.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Sangeeta Pratap & Silvio Rendón, 1996.
"Firm investment in imperfect capital markets: A structural estimation,"
Economics Working Papers
274, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1998.
- Sangeeta Pratap & Silvio Rendon, 2003. "Firm Investment in Imperfect Capital Markets: A Structural Estimation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 513-545, July.
- Nicolas Berman, 2009. "Financial Crises and International Trade: The Long Way to Recovery," Economics Working Papers ECO2009/23, European University Institute.
- Luis Carranza & José Enrique Galdón Sánchez & Javier Gómez Biscarri, .
"The relationship between investment and large exchange rate depreciations in dollarized economies,"
Faculty Working Papers
01/08, School of Economics and Business Administration, University of Navarra.
- Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2011. "The relationship between investment and large exchange rate depreciations in dollarized economies," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1265-1279.
- Jae Sim & Simon Gilchrist, 2007.
"Investment during the Korean financial crisis: A structural econometric approach,"
2007 Meeting Papers
53, Society for Economic Dynamics.
- Simon Gilchrist & Jae W. Sim, 2007. "Investment During The Korean Financial Crisis: A Structural Econometric Approach," Boston University - Department of Economics - Working Papers Series WP2007-001, Boston University - Department of Economics.
- Sangeeta Pratap & Carlos Urrutia, 2011.
"Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises,"
1104, Centro de Investigacion Economica, ITAM.
- Sangeeta Pratap & Carlos Urrutia, 2012. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(3), pages 336-358, July.
- Sangeeta Pratap & Carlos Urrutia, 2010. "Financial Frictions and Total Factor Productivity: Accounting for the Real Effects of Financial Crises," Hunter College Department of Economics Working Papers 429, Hunter College: Department of Economics.
- Mustafa Caglayan & Rebeca Muñoz Torres, 2011.
"The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry,"
Open Economies Review,
Springer, vol. 22(4), pages 669-683, September.
- Caglayan, Mustafa & Muñoz Torres, Rebeca I., 2008. "The Effect of the Exchange Rates on Investment in Mexican Manufacturing Industry," The Warwick Economics Research Paper Series (TWERPS) 846, University of Warwick, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.