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Speculative attacks and currency crises: The Mexican experience

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Author Info

  • Inci Ötker

    ()

  • Ceyla PazarbaÅŸioÄlu

    ()

Abstract

By using data from the Mexican economy, this paper estimates a speculative attack model of currency crises in order to identify the role of macroeconomic fundamentals and early warning signals of a potential currency crisis. A deterioration in fundamentals appears to generate high one-step-ahead probabilities for the observed regime changes during the sample period 1982–1994. Particularly, foreign reserve losses, expansionary output, monetary and fiscal policies, an increase in inflation differentials and the share of short-term foreign currency-indexed debt, and an appreciation of the real exchange rate appear to have contributed to the speculative pressures and the associated regime changes. Copyright Kluwer Academic Publishers 1996

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 7 (1996)
Issue (Month): 1 (March)
Pages: 535-552

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Handle: RePEc:kap:openec:v:7:y:1996:i:1:p:535-552

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: Exchange rates; speculative attacks; economic fundamentals; Mexico; B22; S31; F33;

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References

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  1. Edin, P.A. & Vredin, A., 1991. "Devaluation Risk in Target Zones: Evidence from the Nordic Countries," Papers 1991g, Uppsala - Working Paper Series.
  2. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  3. Blackburn, Keith & Sola, Martin, 1993. " Speculative Currency Attacks and Balance of Payments Crises," Journal of Economic Surveys, Wiley Blackwell, vol. 7(2), pages 119-44, June.
  4. Blanco, Herminio & Garber, Peter M, 1986. "Recurrent Devaluation and Speculative Attacks on the Mexican Peso," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 148-66, February.
  5. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.
  6. 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.
  7. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  8. Goldberg, Linda S., 1994. "Predicting exchange rate crises : Mexico revisited," Journal of International Economics, Elsevier, vol. 36(3-4), pages 413-430, May.
  9. Linda S. Goldberg, 1988. "Collapsing Exchange Rate Regimes: Shocks and Biases," NBER Working Papers 2702, National Bureau of Economic Research, Inc.
  10. Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, December.
  11. Godfrey,L. G., 1991. "Misspecification Tests in Econometrics," Cambridge Books, Cambridge University Press, number 9780521424592, April.
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Citations

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Cited by:
  1. Thomson Fontaine, 2005. "Currency Crises in Developed and Emerging Market Economies," IMF Working Papers 05/13, International Monetary Fund.
  2. Pazarbasioglu, Ceyla & Otker, Inci, 1997. "Likelihood versus timing of speculative attacks: A case study of Mexico," European Economic Review, Elsevier, vol. 41(3-5), pages 837-845, April.
  3. Lin, Chin-Shien & Khan, Haider A. & Chang, Ruei-Yuan & Wang, Ying-Chieh, 2008. "A new approach to modeling early warning systems for currency crises: Can a machine-learning fuzzy expert system predict the currency crises effectively?," Journal of International Money and Finance, Elsevier, vol. 27(7), pages 1098-1121, November.
  4. Patrick N. Osakwe & Lawrence L. Schembri, 1999. "Real Effects of Collapsing Exchange Rate Regimes: An Application to Mexico," Carleton Economic Papers 99-07, Carleton University, Department of Economics, revised Aug 2002.
  5. Sell, Friedrich L., 1999. "Risiken für die Emerging Markets in Mittel- und Osteuropa vor dem Hintergrund der Erfahrungen Thailands, Mexikos und Tschechiens ; Beitrag für den Projektbericht: Währungspolitische Optionen für d," Working Papers in Economics 1999,3, Universität der Bundeswehr München, Economic Research Group.
  6. Otker, Inci & Pazarbasioglu, Ceyla, 1997. "Speculative attacks and macroeconomic fundamentals: evidence from some European currencies," European Economic Review, Elsevier, vol. 41(3-5), pages 847-860, April.

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