Advanced Search
MyIDEAS: Login to save this article or follow this journal

The Mexican economic crisis: alternative views

Contents:

Author Info

  • Marco Espinosa
  • Steven Russell

Abstract

The authors of this article suggest that many of the explanations for the 1994 crisis are based on questionable assumptions and dubious analysis. They contend that, when trying to explain the crisis, most authors have concentrated on the wrong economic "fundamentals." They challenge the conventional view that the crisis was caused by a combination of flawed fiscal, monetary, and exchange rate policies. Their explanation for the crisis belongs in an alternative camp that emphasizes the vulnerability of the Mexican financial system to swings in expectations and investor confidence. ; In their view, the Mexican financial crisis was an expectations-driven liquidity crisis that shares many similarities with the financial panics that afflicted the U.S. economy during the late nineteenth century. The immediate cause of the Mexican crisis was political turmoil that created concern among foreign lenders about the safety of their investments. Mexican borrowers' "over-reliance" on short-term liabilities made both individual borrowers and the financial system extremely vulnerable to the adverse political events that shook the confidence of foreign investors. ; This article's principal policy recommendation is for the Mexican government to set up a system of term-graduated multiple reserve requirements for banks ("circuit breakers"). These would give financial institutions (and direct borrowers) strong incentives to lengthen the average term of their debts and make the country's financial system less susceptible to liquidity crises. The average term of the government's liability portfolio would also increase, reducing its own vulnerability to liquidity crises.

Download Info

If 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.
File URL: http://www.frbatlanta.org/frbatlanta/filelegacydocs/Espin811.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Meredith Rector)
Download Restriction: no

Bibliographic Info

Article provided by Federal Reserve Bank of Atlanta in its journal Economic Review.

Volume (Year): (1996)
Issue (Month): Jan ()
Pages: 21-44

as in new window
Handle: RePEc:fip:fedaer:y:1996:i:jan:p:21-44:n:v.80no.1

Contact details of provider:
Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309
Phone: 404-521-8500
Email:
Web page: http://www.frbatlanta.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Mexico ; Financial crises - Mexico ; Devaluation of currency ; Peso; Mexican;

References

References listed on IDEAS
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.:
as in new window
  1. Neil Wallace, 1996. "Narrow banking meets the Diamond-Dybvig model," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-13.
  2. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," NBER Working Papers 5142, National Bureau of Economic Research, Inc.
  3. Owen F. Humpage & Jean M. McIntire, 1995. "An introduction to currency boards," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-11.
  4. William Roberds, 1995. "Financial crises and the payments system: lessons from the National Banking Era," Economic Review, Federal Reserve Bank of Atlanta, issue Sep, pages 15-31.
  5. Cole, Harold L & Kehoe, Timothy J, 2000. "Self-Fulfilling Debt Crises," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 91-116, January.
  6. Espinosa-Vega, Marco A, 1995. "Multiple Reserve Requirements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 762-76, August.
  7. Carlos E. Zarazaga, 1995. "Argentina, Mexico, and currency boards: another case of rules versus discretion," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 14-24.
  8. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  9. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mathur, Ike & Gleason, Kimberly C. & Singh, Manohar, 1998. "Did markets react efficiently to the 1994 Mexican peso crisis? Evidence from Mexican ADRS," Journal of Multinational Financial Management, Elsevier, vol. 8(1), pages 39-48, January.
  2. Michael Chriszt, 2000. "Perspectives on a potential North American monetary union," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 29-38.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedaer:y:1996:i:jan:p:21-44:n:v.80no.1. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.