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Policy priorities and the Mexican exchange rate crisis

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  • William C. Gruben

Abstract

Mexico's December 1994 devaluation and subsequent financial crisis came as a surprise even to some analysts who focus on Latin American financial markets. This article outlines the events leading up to the devaluation and discusses the tension that mounted throughout 1994 between policies to address growing banking-sector problems in Mexico, the policies designed to preserve the nation's exchange rate regime, and the pressures induced by rising U.S. interest rates. The article concludes that-while each difficulty impeded the resolution of the other-the explosive nature of the ensuing crisis may have reflected a third complication, the term structure of dollar-indexed debt.

Suggested Citation

  • William C. Gruben, 1996. "Policy priorities and the Mexican exchange rate crisis," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q I, pages 19-29.
    • Handle: RePEc:fip:fedder:y:1996:i:qi:p:19-29
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    References listed on IDEAS

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    11. 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.
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    Cited by:

    1. Norma A. Hernández Perales & Russell Robins, 2002. "An Application Of Arch And Arch-M Models To Study Inflation In Mexico From 1978 To 1999," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 1(3), pages 169-186, Septiembr.
    2. Joseph A. Whitt, 1996. "The Mexican peso crisis," Economic Review, Federal Reserve Bank of Atlanta, vol. 80(Jan), pages 1-20.
    3. Sell, Friedrich L., 1999. "Risiken für die Emerging Markets in Mittel- und Osteuropa vor dem Hintergrund der Erfahrungen Thailands, Mexikos und Tschechiens," Working Papers in Economics 1999,3, Bundeswehr University Munich, Economic Research Group.
    4. William C. Gruben & Jahyeong Koo & Robert R. Moore, 2003. "Financial liberalization, market discipline and bank risk," Center for Latin America Working Papers 0303, Federal Reserve Bank of Dallas.
    5. Anderson, David P. & Mintert, James R. & Brester, Gary W., 1998. "The North American Livestock Industry: A U.S. Perspective," Proceedings of the 4th Agricultural and Food Policy Systems Information Workshop 1998: Economic Harmonization in the Canadian\U.S.\Mexican Grain-Livestock Subsector; 16765, Farm Foundation, Agricultural and Food Policy Systems Information Workshops.

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    Keywords

    Financial crises - Mexico; Mexico;

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