Firm Dynamics, Investment, and Debt Portfolio: Balance Sheet Effects of the Mexican Crisis of 1994
We build a partial equilibrium model of firm dynamics under exchange rate uncertainty. Firms face idiosyncratic productivity shocks and observe the current level of the real exchange rate each period. Given their current level of capital stock, firms make their export decisions and choose how much to invest. Investment is financed through one period loans from foreign lenders. The interest rate charged by each lender is set to satisfy an expected zero-profit condition. The model delivers a distribution of firms over productivity, capital stocks and debt portfolios, as well as an exit rule. We calibrate the model using data from a panel of Mexican firms, from 1989 to 2000, and analyze the effect of the 1994 crisis on these variables. As a result of the real exchange rate depreciation, the model predicts: (i) an increase in the debt burden, (ii) an increase in exports, and (iii) a large decline in investment. These real effects are consistent with the evidence for the Mexican crisis.
|Date of creation:||Mar 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +525 628 4197
Fax: +525 628 4058
Web page: http://cie.itam.mx/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "Decades lost and found: Mexico and Chile since 1980," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 3-30.
- Ricardo Caballero & Arvind Krishnamurthy, 2000.
"International and Domestic Collateral Constraints in a Model of Emerging Market Crises,"
NBER Working Papers
7971, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December.
- Philippe AGHION & Philippe BACCHETTA & Abhijit BANERJEE, 1999.
"A Simple Model of Monetary Policy and Currency Crises,"
Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
9914, Université de Lausanne, Faculté des HEC, DEEP.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "A simple model of monetary policy and currency crises," European Economic Review, Elsevier, vol. 44(4-6), pages 728-738, May.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 1999. "A Simple Model of Monetary Pollicy and Currency Crises," Working Papers 99.05, Swiss National Bank, Study Center Gerzensee.
- Sangeeta Pratap & Silvio Rendón, 1996.
"Firm investment in imperfect capital markets: A structural estimation,"
Economics Working Papers
274, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 1998.
- Sangeeta Pratap & Silvio Rendon, 2003. "Firm Investment in Imperfect Capital Markets: A Structural Estimation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 513-545, July.
- Martin Schneider & Aaron Tornell, 2004.
"Balance Sheet Effects, Bailout Guarantees and Financial Crises,"
Review of Economic Studies,
Wiley Blackwell, vol. 71, pages 883-913, 07.
- Martin Schneider & Aaron Tornell, 2000. "Balance SHeet Effects, Bailout Guarantees and Financial Crises," NBER Working Papers 8060, National Bureau of Economic Research, Inc.
- Thomas F. Cooley & Vincenzo Quadrini, 2001.
"Financial Markets and Firm Dynamics,"
American Economic Review,
American Economic Association, vol. 91(5), pages 1286-1310, December.
- Ignacio Lobato & Sangeeta Pratap & Alejandro Somuano, 2004.
"Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis,"
0405, Centro de Investigacion Economica, ITAM.
- Pratap, Sangeeta & Lobato, Ignacio & Somuano, Alejandro, 2003. "Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 450-471, December.
- Hoyt Bleakley & Kevin Cowan, 2002.
"Corporate dollar debt and depreciations: much ado about nothing?,"
02-5, Federal Reserve Bank of Boston.
- Hoyt Bleakley & Kevin Cowan, 2008. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 612-626, November.
- Hoyt Bleakley & Kevin Cowan, 2005. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," Research Department Publications 4411, Inter-American Development Bank, Research Department.
- Hoyt Bleakley & Kevin Cowan, 2005. "Corporate Dollar Debt and Depreciations: Much Ado about Nothing?," IDB Publications (Working Papers) 6693, Inter-American Development Bank.
- Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
- Aaron Tornell & Frank Westermann & Lorenzo Martinez, 2004.
"Nafta and Mexico Less-than-Steller Performance,"
UCLA Economics Working Papers
833, UCLA Department of Economics.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
When requesting a correction, please mention this item's handle: RePEc:cie:wpaper:0406. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diego Dominguez)
If references are entirely missing, you can add them using this form.