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The giant sucking sound: did NAFTA devour the Mexican peso?

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  • Christopher J. Neely

Abstract

Five years of economic reforms had made Mexico a model for other developing nations by the end of 1993, when Mexico was preparing to enter into the North American Free Trade Agreement (NAFTA) with Canada and the United States. But less than a year later, in December 1994, Mexico experienced a severe financial crisis, forcing it to borrow from the IMF and the United States. Some commentators blamed the enactment of NAFTA for the devaluation of the peso and the ensuing economic turmoil in Mexico, with some calling for renegotiation or even repeal of the agreement. Author Christopher J. Neely examines the relationship between NAFTA and the 1994 peso crisis and raises some provocative questions: did NAFTA cause or exacerbate the devaluation of the peso? or did NAFTA help alleviate some of the consequences of the crisis?

Suggested Citation

  • Christopher J. Neely, 1996. "The giant sucking sound: did NAFTA devour the Mexican peso?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 33-48.
  • Handle: RePEc:fip:fedlrv:y:1996:i:jul:p:33-48:n:v.78no.5
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    References listed on IDEAS

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    1. Linda M. Aguilar, 1993. "NAFTA: a review of the issues," Economic Perspectives, Federal Reserve Bank of Chicago, issue Jan, pages 12-20.
    2. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2009. "A North American Free Trade Agreement: Analytical Issues and a Computational Assessment," World Scientific Book Chapters,in: Globalization And International Trade Policies, chapter 12, pages 393-424 World Scientific Publishing Co. Pte. Ltd..
    3. Calvo, Guillermo A, 1996. "Capital Flows and Macroeconomic Management: Tequila Lessons," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 207-223, July.
    4. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
    5. Corbo, Vittorio & de Melo, Jaime, 1987. "Lessons from the Southern Cone Policy Reforms," World Bank Research Observer, World Bank Group, vol. 2(2), pages 111-142, July.
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    Cited by:

    1. Neely, Christopher J., 2017. "Chinese Foreign Exchange Reserves, Policy Choices, and the U.S. Economy," Review, Federal Reserve Bank of St. Louis, vol. 99(2), pages 207-231.
    2. David M. Gould, 1998. "Has NAFTA changed North American trade?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 12-23.
    3. repec:taf:uitjxx:v:30:y:2016:i:5:p:449-463 is not listed on IDEAS

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