Speculative Attacks and Currency Crises: The Mexican Experience

Inci Ötker-Robe () and Ceyla Pazarbasioglu

No 1995/112, IMF Working Papers from International Monetary Fund

Abstract: This paper estimates a speculative attack model of currency crises in order to identify the role of economic fundamentals and any early warning signals of a potential currency crisis. The data from the Mexican economy was used to illustrate the model. Based on the results, a deterioration in fundamentals appears to have generated high one-step-ahead probabilities for the regime changes during the sample period 1982-1994. Particularly, increases in inflation differentials, appreciations of the real exchange rate, foreign reserve losses, expansionary monetary and fiscal policies, and increases in the share of short-term foreign currency debt appear to have contributed to the market pressures and regime changes in that period.

Keywords: WP; central bank; U.S. dollar; Mexican peso; exchange rate system; devaluation probability; intervention band; band exchange rate mechanism; currency float; exchange rate depreciation; fixed exchange rate system; devaluation of the peso; exchange rate realignment; currency crisis model; crawling band exchange rate mechanism; Exchange rate arrangements; Exchange rates; Crawling peg; Conventional peg; Currencies (search for similar items in EconPapers)
Pages: 38
Date: 1995-11-01
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Citations: View citations in EconPapers (10)

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Journal Article: Speculative attacks and currency crises: The Mexican experience (1996)
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