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Disinflation and the December 1994 Devaluation in Mexico

  • Carlos Ibarra
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    This paper discusses the determinants of the Mexican peso devaluation of December 1994. An examination of basic economic data reveals the shortcomings of existing explanations based on either inconsistent macroeconomic policies or self-fulfilling prophecies. We argue in contrast that the devaluation was related to the exhaustion of the disinflationary programme launched in the late 1980s, and that the timing of policy change was critically influenced by a conflict between the inherited disinflationary stance and the economic goals of the administration taking office in December 1994. The analysis suggests that a prolonged period of real currency appreciation before the devaluation was made possible not only by the strong inflationary aversion of the authorities but by a series of positive shocks that reduced the appreciation's negative effects.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/026921799101733
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    Article provided by Taylor & Francis Journals in its journal International Review of Applied Economics.

    Volume (Year): 13 (1999)
    Issue (Month): 1 ()
    Pages: 55-69

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    Handle: RePEc:taf:irapec:v:13:y:1999:i:1:p:55-69
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    1. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
    2. Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911 Elsevier.
    3. Robert P. Flood & Jagdeep S. Bhandari & Pierre-Richard Agénor, 1991. "Speculative Attacks and Models of Balance of Payments Crises," IMF Working Papers 91/99, International Monetary Fund.
    4. Allan Drazen & Paul R. Masson, 1993. "Credibility of Policies versus Credibility of Policymakers," NBER Working Papers 4448, National Bureau of Economic Research, Inc.
    5. Pierre-Richard Agénor & Jagdeep S. Bhandari & Robert P. Flood, 1992. "Speculative Attacks and Models of Balance of Payments Crises," IMF Staff Papers, Palgrave Macmillan, vol. 39(2), pages 357-394, June.
    6. Sachs, J. & Tornell, A. & Velasco, A., 1996. "The Mexican Peso Crisis: Sudden Death or Death Foretold?," Working Papers 96-20, C.V. Starr Center for Applied Economics, New York University.
    7. Guillermo A. Calvo & Enrique G. Mendoza, 1996. "Mexico's balance-of-payments crisis: a chronicle of death foretold," International Finance Discussion Papers 545, Board of Governors of the Federal Reserve System (U.S.).
    8. Obstfeld, Maurice, 1996. "Models of Currency Crises with Self-fulfilling Features," CEPR Discussion Papers 1315, C.E.P.R. Discussion Papers.
    9. Flood, Robert P. & Garber, Peter M. & Kramer, Charles, 1996. "Collapsing exchange rate regimes: Another linear example," Journal of International Economics, Elsevier, vol. 41(3-4), pages 223-234, November.
    10. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    11. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
    12. Gros, Daniel, 1992. "Capital controls and foreign exchange market crises in the EMS," European Economic Review, Elsevier, vol. 36(8), pages 1533-1544, December.
    13. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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