The Mexican Peso Crisis: Sudden Death or Death Foretold?

J. Sachs, Aaron Tornell and A. Velasco

Working Papers from C.V. Starr Center for Applied Economics, New York University

Abstract: We argue that allowing for the possibility of a self-fulfilling panic helps understand several features of the recent Mexican crisis. Self-fulfilling expectations became decisive in generating a panic only after the government ran down gross reserves and ran up short-term dollar debt. We present a simple model to explain how and why multiple equilibria can occur for some levels of reserves or debt, but not for others.

Keywords: MEXICO; MONEY; CURRENCIES; MONETARY POLICY; EXCHANGE RATE (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 F32 O54 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1996
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Citations: View citations in EconPapers (138)

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Journal Article: The Mexican peso crisis: Sudden death or death foretold? (1996)
Working Paper: The Mexican Peso Crisis: Sudden Death or Death Foretold? (1996)
Working Paper: The Mexican Peso Crisis: Sudden Death or Death Foretold? (1996)
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