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The Role of Information Disparity in the 1994/95 Mexican Peso

  • Christina Bannier

    (nee Metz, J.W. Goethe University Frankfurt)

In the Mexican Peso crisis 1994/95, the lack of readily available information, particularly regarding monetary aggregates, has often been commented on. This paper analyzes empirically whether information disparity with respect to economic fundamentals contributed to the crisis. Using historical forecast data collected by Consensus Economics, we show that uncertainties, as measured by the forecast variation, significantly influenced the pressure on the fixed Peso rate. This effect is additional to the one that actual and expected fundamentals had on the exchange rate pressure. Furthermore, the impact of information disparity is found to be contingent on the market expectation about fundamentals. It seems that the central bank's strategy of not publicly disclosing information was detrimental for the very reason that the market sentiment was generally optimistic with regard to the monetary development.

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File URL: http://128.118.178.162/eps/if/papers/0310/0310001.pdf
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Paper provided by EconWPA in its series International Finance with number 0310001.

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Length: 29 pages
Date of creation: 06 Oct 2003
Date of revision:
Handle: RePEc:wpa:wuwpif:0310001
Note: Type of Document - LaTeX; pages: 29
Contact details of provider: Web page: http://128.118.178.162

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  1. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  2. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
  3. Christina E. Bannier, 2003. "Private and Public Information in Self-Fulfilling Currency Crises," International Finance 0309006, EconWPA.
  4. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
  5. repec:cup:cbooks:9780521411462 is not listed on IDEAS
  6. Morris, Stephen & Rob, Rafael & Shin, Hyun Song, 1995. "Dominance and Belief Potential," Econometrica, Econometric Society, vol. 63(1), pages 145-57, January.
  7. Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: unique equilibrium and transparency," Journal of International Economics, Elsevier, vol. 58(2), pages 429-450, December.
  8. Sebastian Edwards, 1997. "The Mexican Peso Crisis? How Much Did We Know? When Did We Know It?," NBER Working Papers 6334, National Bureau of Economic Research, Inc.
  9. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
  10. M. Sbracia & Alessandro Prati, 2002. "Currency Crises and Uncertainty About Fundamentals," IMF Working Papers 02/3, International Monetary Fund.
  11. Nora Lustig, . "The Mexican Peso Crisis: The Foreseeable and the Surprise," Discussion Papers 114, Brookings Institution International Economics.
  12. repec:cup:cbooks:9780521423083 is not listed on IDEAS
  13. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
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