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

Author

Listed:
  • Christina Bannier

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

Abstract

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.

Suggested Citation

  • Christina Bannier, 2003. "The Role of Information Disparity in the 1994/95 Mexican Peso," International Finance 0310001, EconWPA.
  • Handle: RePEc:wpa:wuwpif:0310001
    Note: Type of Document - LaTeX; pages: 29
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    File URL: http://econwpa.repec.org/eps/if/papers/0310/0310001.pdf
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    References listed on IDEAS

    as
    1. Christina E. Metz, 2002. "Private and Public Information in Self-fulfilling Currency Crises," Journal of Economics, Springer, vol. 76(1), pages 65-85, May.
    2. Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: unique equilibrium and transparency," Journal of International Economics, Elsevier, vol. 58(2), pages 429-450, December.
    3. 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 587-597, June.
    4. Gourieroux,Christian & Monfort,Alain, 1997. "Time Series and Dynamic Models," Cambridge Books, Cambridge University Press, number 9780521423083.
    5. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
    6. Morris, Stephen & Rob, Rafael & Shin, Hyun Song, 1995. "Dominance and Belief Potential," Econometrica, Econometric Society, vol. 63(1), pages 145-157, January.
    7. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
    8. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
    9. 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.
    10. Nora Lustig, "undated". "The Mexican Peso Crisis: The Foreseeable and the Surprise," Discussion Papers 114, Brookings Institution International Economics.
    11. M. Sbracia & Alessandro Prati, 2002. "Currency Crises and Uncertainty About Fundamentals," IMF Working Papers 02/3, International Monetary Fund.
    12. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Cheung, Yin-Wong & Friedman, Daniel, 2009. "Speculative attacks: A laboratory study in continuous time," Journal of International Money and Finance, Elsevier, vol. 28(6), pages 1064-1082, October.

    More about this item

    Keywords

    Currency Crisis; Speculative Attack; Private and Public Information; Transparency;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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