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The Role of Information Disparity in the 1994/95 Mexican Peso

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Author Info

  • Christina Bannier

    (nee Metz, J.W. Goethe University Frankfurt)

Abstract

In the Mexican Peso crisis 1994/95, the lack of readily available information, particularly regarding monetary aggregates, has often been commented on. This paper analyzes empirically whether information disparity with respect to economic fundamentals contributed to the crisis. Using historical forecast data collected by Consensus Economics, we show that uncertainties, as measured by the forecast variation, significantly influenced the pressure on the fixed Peso rate. This effect is additional to the one that actual and expected fundamentals had on the exchange rate pressure. Furthermore, the impact of information disparity is found to be contingent on the market expectation about fundamentals. It seems that the central bank's strategy of not publicly disclosing information was detrimental for the very reason that the market sentiment was generally optimistic with regard to the monetary development.

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File URL: http://128.118.178.162/eps/if/papers/0310/0310001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0310001.

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Length: 29 pages
Date of creation: 06 Oct 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0310001

Note: Type of Document - LaTeX; pages: 29
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Web page: http://128.118.178.162

Related research

Keywords: Currency Crisis; Speculative Attack; Private and Public Information; Transparency;

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References

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  1. Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: unique equilibrium and transparency," Journal of International Economics, Elsevier, vol. 58(2), pages 429-450, December.
  2. M. Sbracia & Alessandro Prati, 2002. "Currency Crises and Uncertainty About Fundamentals," IMF Working Papers 02/3, International Monetary Fund.
  3. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
  4. Sebastian Edwards, 1997. "The Mexican Peso Crisis? How Much Did We Know? When Did We Know It?," NBER Working Papers 6334, National Bureau of Economic Research, Inc.
  5. Lustig, N., 1995. "The Mexican Peso Crisis: The Foreseeable and the Surprise," Papers 114, Brookings Institution - Working Papers.
  6. Stephen Morris & Hyun Song Shin, 1999. "Coordination Risk and the Price of Debt," Cowles Foundation Discussion Papers 1241, Cowles Foundation for Research in Economics, Yale University.
  7. Metz, Christina E., 2000. "Private and public information in self-fulfilling currency crises," Research Notes 00-7, Deutsche Bank Research.
  8. Morris, Stephen & Rob, Rafael & Shin, Hyun Song, 1995. "Dominance and Belief Potential," Econometrica, Econometric Society, vol. 63(1), pages 145-57, January.
  9. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
  10. Gourieroux,Christian & Monfort,Alain, 1997. "Time Series and Dynamic Models," Cambridge Books, Cambridge University Press, number 9780521423083.
  11. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  12. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
  13. Gourieroux,Christian & Monfort,Alain, 1997. "Time Series and Dynamic Models," Cambridge Books, Cambridge University Press, number 9780521411462.
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Cited by:
  1. Yin-Wong Cheung & Daniel Friedman, 2009. "Speculative Attacks: A Laboratory Study in Continuous Time," Working Papers 072009, Hong Kong Institute for Monetary Research.

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