IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Borrowing Risk and the Tequila Effect

  • Pierre-Richard Agénor
Registered author(s):

    This paper models the Tequila effect (triggered by the collapse of the Mexican peso in December 1994) as a temporary increase in the risk premium faced by domestic private borrowers on world capital markets. The effects of this shock are studied in an intertemporal optimizing framework where firms’ demand for working capital is financed by bank credit. Under the assumption that the perceived duration of the shock is sufficiently long, the model is capable of reproducing some of the main features of Argentina’s economic downturn in the aftermath of the collapse of the Mexican peso: the rise in domestic interest rates, the reduction in net private capital inflows and the drop in official reserves, the reduction in bank deposits and credit supply, the fall in private consumption, the contraction in output, and the increase in unemployment.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 97/86.

    in new window

    Length: 37
    Date of creation: 01 Jul 1997
    Date of revision:
    Handle: RePEc:imf:imfwpa:97/86
    Contact details of provider: Postal: International Monetary Fund, Washington, DC USA
    Phone: (202) 623-7000
    Fax: (202) 623-4661
    Web page:

    More information through EDIRC

    Order Information: Web:

    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.:

    as in new window
    1. Peter Isard & Liliana Rojas-Suárez & Donald J. Mathieson, 1992. "A Framework for the Analysis of Financial Reforms and the Cost of official Safety Nets," IMF Working Papers 92/31, International Monetary Fund.
    2. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
    3. Drazen, Allan & Helpman, Elhanan, 1990. "Inflationary Consequences of Anticipated Macroeconomic Policies," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 147-64, January.
    4. Hellmuth Milde & John G. Riley, 1986. "Signalling in Credit Markets," UCLA Economics Working Papers 334, UCLA Department of Economics.
    5. Joshua Aizenman & Michael Gavin & Ricardo Hausmann, 2001. "Optimal tax and debt policy with endogenously imperfect creditworthiness," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 9(4), pages 367-395.
    6. Sebastian Edwards & Carlos A. Végh, 1997. "Banks and Macroeconomic Disturbances Under Predetermined Exchange Rates," CEMA Working Papers: Serie Documentos de Trabajo. 115, Universidad del CEMA.
    7. Pierre-Richard Agénor & Joshua Aizenman, 1998. "Contagion and Volatility with Imperfect Credit Markets," IMF Staff Papers, Palgrave Macmillan, vol. 45(2), pages 207-235, June.
    8. Ilan Goldfajn & Rodrigo Valdés, 1997. "Balance of Payments Crises and Capital Flows: The Role of Liquidity," Working Papers Central Bank of Chile 11, Central Bank of Chile.
    9. Steven Riess Weisbrod & Liliana Rojas-Suárez, 1995. "Financial Fragilities in Latin America: The 1980s and 1990s," IMF Occasional Papers 132, International Monetary Fund.
    10. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
    11. Aizenman, Joshua, 1989. "Country Risk, Incomplete Information and Taxes on International Borrowing," Economic Journal, Royal Economic Society, vol. 99(394), pages 147-61, March.
    12. Paul R. Masson & Pierre-Richard Agénor, 1996. "The Mexican Peso Crisis: Overview and Analysis of Credibility Factors," IMF Working Papers 96/6, International Monetary Fund.
    13. Eichengreen, Barry & Rose, Andrew & Wyplosz, Charles, 1996. " Contagious Currency Crises: First Tests," Scandinavian Journal of Economics, Wiley Blackwell, vol. 98(4), pages 463-84, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:97/86. 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: (Jim Beardow)

    or (Hassan Zaidi)

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.