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Applications of sudden stops of international capital to the Mexican economy

Author

Listed:
  • Paula Lourdes Hernández Verme

    (Universidad de Guanajuato)

  • Mónica Karina Rosales Pérez

    (Universidad de Guanajuato)

Abstract

There was nothing in the fundamentals of the Mexican economy that would suggest at the moment the beginning of a crisis of such magnitude. The 1994 crisis was extremely unexpected for households and domestic and foreign firms, because there were good economic indicators so far, together with the financial stability of the previous years. The Mexico of 1994 had a de jure fixed exchange rate regime, but in practice, it was an intermediate peg, not a serious hard peg. Our goal is to try to find out whether things would have been different if there would have been instead either a floating exchange rate regime or a hard peg in Mexico at the time of the crisis of 1994. In our aim at trying to answer this question, we set up a Dynamic Stochastic General Equilibrium Model (DSGE) that shared the main stylized characteristics of the Mexican economy of that time. We considered a pure exchange, monetary, small open economy with a DSGE framework in discrete time that obtains from micro-foundations.

Suggested Citation

  • Paula Lourdes Hernández Verme & Mónica Karina Rosales Pérez, 2016. "Applications of sudden stops of international capital to the Mexican economy," Working Papers 2016-74, Peruvian Economic Association.
  • Handle: RePEc:apc:wpaper:2016-074
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    References listed on IDEAS

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    More about this item

    Keywords

    exchange rate regimes; sudden stops of international capital; bank panics; dynamic stochastic general equilibrium; monetary policy; small open economy;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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