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The Mexican Peso Crisis: Sudden Death or Death Foretold?

Author

Listed:
  • Sachs, J.
  • Tornell, A.
  • Velasco, A.

Abstract

We argue that allowing for the possibility of a self-fulfilling panic helps understand several features of the recent Mexican crisis. Self-fulfilling expectations became decisive in generating a panic only after the government ran down gross reserves and ran up short-term dollar debt. We present a simple model to explain how and why multiple equilibria can occur for some levels of reserves or debt, but not for others.

Suggested Citation

  • 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.
  • Handle: RePEc:cvs:starer:96-20
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    File URL: http://econ.as.nyu.edu/docs/IO/9383/RR96-20.PDF
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    References listed on IDEAS

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    More about this item

    Keywords

    MEXICO; MONEY; CURRENCIES; MONETARY POLICY; EXCHANGE RATE;

    JEL classification:

    • 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
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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