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Mexico's balance-of-payments crisis: a chronicle of death foretold

Guillermo Calvo and Enrique Mendoza ()

No 545, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper claims that the roots of Mexico's balance-of-payments crisis are found in the prevailing high degree of capital mobility and financial globalization. Under these circumstances, shifts in foreign capital flows and anticipation of a banking-system bailout may produce large imbalances between stocks of financial assets and foreign reserves, threatening the sustainability of currency pegs. Econometric analysis suggests that 1/2 of Mexico's reserve losses could be accounted for by these phenomena. Large financial imbalances are also fertile ground for self-fulfilling-prophesy crises which lead devaluations to produce deep recessions. These difficulties can be partly remedied by appropriate policies.

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