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Mexico's Financial Sector Crisis: Propagative Linkages to Devaluation

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  • Wilson, Berry
  • Saunders, Anthony
  • Caprio, Gerard, Jr

Abstract

The sharp 1994 Mexican peso devaluation was followed by a financial-sector crisis, forcing the Mexican government to retake control of several banks and to grant substantial assistance to many others. This paper tests several hypotheses concerning the impact of devaluation. First, event-study methodology is used to test whether some sectors of Mexican economy were "devaluation-gaining" while others were "devaluation-losing". Second, we test whether devaluation shocks were transmitted to the financial sector through the liability side versus the asset side of bank balance sheets. Our results indicate the importance of asset diversification.

Suggested Citation

  • Wilson, Berry & Saunders, Anthony & Caprio, Gerard, Jr, 2000. "Mexico's Financial Sector Crisis: Propagative Linkages to Devaluation," Economic Journal, Royal Economic Society, vol. 110(460), pages 292-308, January.
    • Handle: RePEc:ecj:econjl:v:110:y:2000:i:460:p:292-308
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    Cited by:

    1. Aguiar, Mark & Broner, Fernando A., 2006. "Determining underlying macroeconomic fundamentals during emerging market crises: Are conditions as bad as they seem?," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 699-724, May.
    2. Desmet, Klaus, 2000. "Accounting for the Mexican banking crisis," Emerging Markets Review, Elsevier, vol. 1(2), pages 165-181, September.
    3. Perez-Batres, Luis A. & Eden, Lorraine, 2008. "Is there a liability of localness? How emerging market firms respond to regulatory punctuations," Journal of International Management, Elsevier, vol. 14(3), pages 232-251, September.
    4. Berry Wilson & Anthony Saunders, 2004. "Monetary secrecy and selective disclosure: The emerging market case of Mexico's monetary reporting," Review of Financial Economics, John Wiley & Sons, vol. 13(1-2), pages 199-210.
    5. Rodrigo Saens & Eduardo Sandoval, 2005. "Measuring Security Price Performance Using Chilean Daily Stock Returns: The Event Study Method," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 42(126), pages 307-328.
    6. Mr. Rupert D Worrell, 2004. "Quantitative Assessment of the Financial Sector: An Integrated Approach," IMF Working Papers 2004/153, International Monetary Fund.
    7. Wilson, Berry & Saunders, Anthony, 2004. "Monetary secrecy and selective disclosure: The emerging market case of Mexico's monetary reporting," Review of Financial Economics, Elsevier, vol. 13(1-2), pages 199-210.

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