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The Macroeconomics of the Mexican Crisis: A Simple Two-period Model

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Author Info
Irwin, Gregor
Vines, David

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Abstract

We analyse the events leading to the devaluation of the Mexican peso last year, using a simple two-period model. We view the problem as a race between a foreign investment led demand boom and the potential expansion in supply which might follow; the outcome of such a race is inherently uncertain. If, in an exchange rate based stabilization programme, supply does not keep pace with demand, competitiveness problems will eventually result in lower output, and consequently the government might be tempted to devalue. In Mexico it would also appear that the costs and benefits of maintaining the regime were adversely affected by a reduction in the amount of external financing available.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1241.

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Date of creation: Sep 1995
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Handle: RePEc:cpr:ceprdp:1241

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Related research
Keywords: Capital Inflow; Exchange Rate Crisis; Macroeconomic Stabilization; Mexico;

Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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This page was last updated on 2009-12-21.

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