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The Mexican Peso Crisis Overview and Analysis of Credibility Factors

This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations. Estimation...

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Bibliographic Details
Main Author: Masson, Paul
Other Authors: Agénor, Pierre-Richard
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1996
Series:IMF Working Papers
Subjects:
Inflation
Government And The Monetary System
Payment Systems
Finance
Regimes
Deflation
Open Economy Macroeconomics
Currency
Competition
General Financial Markets: General (includes Measurement And Data)
Price Level
Foreign Exchange
Standards
Financial Markets
Monetary Systems
Prices
Macroeconomics
Crawling Peg
Real Exchange Rates
Exchange Rates
Finance: General
United States
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations. Estimation results indicate that investors appear to have seriously underestimated the risk of devaluation, despite early warning signals. The collapse of confidence that followed the December 20 devaluation may have been the result of a shift in the perceived commitment of the authorities to exchange rate stability
Physical Description:36 pages
ISBN:9781451929096

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