Disinflation and the December 1994 Devaluation in Mexico

Carlos Ibarra

International Review of Applied Economics, 1999, vol. 13, issue 1, 55-69

Abstract: This paper discusses the determinants of the Mexican peso devaluation of December 1994. An examination of basic economic data reveals the shortcomings of existing explanations based on either inconsistent macroeconomic policies or self-fulfilling prophecies. We argue in contrast that the devaluation was related to the exhaustion of the disinflationary programme launched in the late 1980s, and that the timing of policy change was critically influenced by a conflict between the inherited disinflationary stance and the economic goals of the administration taking office in December 1994. The analysis suggests that a prolonged period of real currency appreciation before the devaluation was made possible not only by the strong inflationary aversion of the authorities but by a series of positive shocks that reduced the appreciation's negative effects.

Date: 1999
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DOI: 10.1080/026921799101733

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