IDEAS home Printed from https://ideas.repec.org/p/fip/fedfap/96-02.html
   My bibliography  Save this paper

Capital flows and macroeconomic management: tequila lessons

Author

Listed:
  • Guillermo A. Calvo

Abstract

This paper examines the recent financial debacle in Mexico and its effects on other emerging markets (the Tequila effect). I argue that financial and liquidity considerations--as opposed to current account sustainability or real exchange rate considerations--appear to have played a prominent role. Special attention is given to financial factors in Latin America. On this basis it is concluded that Mexico and Argentina were particularly vulnerable to speculative attacks. For contrast, the experience of Austria is examined and compared with that of Mexico. The analysis suggests that the remarkable stability of Austria--which pegged its currency to the Deutsche Mark for more than 15 years--may be due to the low volatility of its monetary aggregates. I also argue that financial factors could account for multiple self-fulfilling equilibria, helping to explain the sudden and deep reversals in Mexico and Argentina. It concludes with a discussion on policy implications. I suggest that, aside from the usual fiscal prudence advice, countries should pay special attention to the banking system and the maturity of public debt. Furthermore, the appropriateness of an exchange rate regime should take into account the characteristics of the financial sector. Copyright @ 1996 by John Wiley & Sons, Ltd. All rights reserved.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Guillermo A. Calvo, 1996. "Capital flows and macroeconomic management: tequila lessons," Working Papers in Applied Economic Theory 96-02, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfap:96-02
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedfap:96-02. 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: (Federal Reserve Bank of San Francisco Research Library). General contact details of provider: http://edirc.repec.org/data/frbsfus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.