Policy priorities and the Mexican exchange rate crisis

William Gruben

Economic and Financial Policy Review, 1996, issue Q I, 19-29

Abstract: Mexico's December 1994 devaluation and subsequent financial crisis came as a surprise even to some analysts who focus on Latin American financial markets. This article outlines the events leading up to the devaluation and discusses the tension that mounted throughout 1994 between policies to address growing banking-sector problems in Mexico, the policies designed to preserve the nation's exchange rate regime, and the pressures induced by rising U.S. interest rates. The article concludes that-while each difficulty impeded the resolution of the other-the explosive nature of the ensuing crisis may have reflected a third complication, the term structure of dollar-indexed debt.

Keywords: Financial crises - Mexico; Mexico (search for similar items in EconPapers)
Date: 1996
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