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Exchange Rate Policy Credibility in Mexico, 1991-1994

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  • Carlos Alberto Ibarra

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

Abstract

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.

Suggested Citation

  • Carlos Alberto Ibarra, 1998. "Exchange Rate Policy Credibility in Mexico, 1991-1994," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 229-266, July-Dece.
  • Handle: RePEc:emc:ecomex:v:7:y:1998:i:2:p:229-266
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    File URL: http://www.economiamexicana.cide.edu/num_anteriores/VII-2/03_IBARRA_229-266.pdf
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    References listed on IDEAS

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    1. Persson, Torsten, 1988. "An introduction and a broad survey," European Economic Review, Elsevier, vol. 32(2-3), pages 519-532, March.
    2. Lars E. O. Svensson, 1991. "The Simplest Test of Target Zone Credibility," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 655-665, September.
    3. 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.
    4. 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.
    5. 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.
    6. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164.
    7. 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.
    8. 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, April.
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