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Exchange Rate Policy Credibility in Mexico, 1991-1994

  • Carlos Alberto Ibarra

    (Departamento de Economía, UDLA. Puebla, Pue. Mexico.)

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    An econometric examination of interest rate differentials reveals the existence of a significant relationship between the level of exchange rate policy credibility in Mexico during 1991-1994, and the country’s macroeconomic performance, the central bank international reserves and the NAFTA ratification. Interestingly, a steady fall in manufactures output growth tended to improve credibility, which suggests the existence of gains in the government’s disinflationary reputation. Additionally, it is argued that downward pressure on the domestic peso-dollar interest differential came from the exchange rate debt indexation of 1994 and the opening of the domestic bond market to foreign investment in December 1990.

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    Article provided by in its journal Economia Mexicana NUEVA EPOCA.

    Volume (Year): VII (1998)
    Issue (Month): 2 (July-December)
    Pages: 229-266

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    Handle: RePEc:emc:ecomex:v:7:y:1998:i:2:p:229-266
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    1. Jeffrey A. Frankel & Sergio L. Schmukler, 1996. "Country Fund Discounts, Asymmetric Information and the Mexican Crisis of 1994: Did Local Residents Turn Pessimistic Before International Investors?," NBER Working Papers 5714, National Bureau of Economic Research, Inc.
    2. Lars E.O. Svensson, 1990. "The Simplest Test of Target Zone Credibility," NBER Working Papers 3394, National Bureau of Economic Research, Inc.
    3. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
    4. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, July.
    5. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
    6. Persson, Torsten, 1988. "An introduction and a broad survey," European Economic Review, Elsevier, vol. 32(2-3), pages 519-532, March.
    7. Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1, December.
    8. James E. Hartley, 1996. "Retrospectives: The Origins of the Representative Agent," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 169-177, Spring.
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