Mexican Peso Research Articles

Self-Fulfilling Risk Predictions: An Application to Speculative Attacks

The paper shows that changing market beliefs about currency risk can generate a self-fulfilling speculative attack on a fixed exchange rate. The attack does not require a later change in policies to make it profitable. This is illustrated by introducing an endogenous risk premium into a “first-generation model” of a speculative attack. The model is further modified to take account of sterilization, debt-financed fiscal deficits, and anticipatory price-setting behavior. The model is used to interpret the 1994 Mexican peso crisis.

Did markets react efficiently to the 1994 Mexican peso crisis? Evidence from Mexican ADRS

The capital markets' reaction to the 1994 Mexican peso crisis is examined in this paper. The transmission of news from the Mexican market to the US market is examined by using a sample of 29 Mexican ADRs trading in the US. Using event study methodology in a multivariate regression setting, we show that information is transmitted efficiently from one market to the other. The regression of the US dollar returns on the Mexican IPC Index on the dollar returns of a portfolio of Mexican ADRs trading in the US does not show any significant arbitrage opportunities on the event dates used in the study. However, excess returns are observed in the period subsequent to the event dates when the market model is used as the return generating process with the US index as the market index. This result indicates the possibility of deriving excess returns associated with trading the Mexican ADRs in days subsequent to the news disclosures. When both the US and the Mexican indices are employed simultaneously, both indices are significant in explaining returns on the Mexican ADR portfolio.

The Mexican Peso Crisis: How Much Did We Know? When Did We Know It?

The World EconomyVolume 21, Issue 1 p. 1-30 The Mexican Peso Crisis: How Much Did We Know? When Did We Know It? Sebastian Edwards, Sebastian Edwards University of California, Los Angeles and the National Bureau of Economic Research.Search for more papers by this author Sebastian Edwards, Sebastian Edwards University of California, Los Angeles and the National Bureau of Economic Research.Search for more papers by this author First published: 10 January 2003 https://doi.org/10.1111/1467-9701.00117Citations: 11AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinked InRedditWechat Citing Literature Volume21, Issue1January 1998Pages 1-30 RelatedInformation

Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?

Recent interest in futures contracts on emerging market currencies has raised concerns among some central bank authorities about their ability to maintain stable currencies. This paper presents empirical results examining the influence of the Mexican peso, the Brazilian real, and the Hungarian forint futures contracts on the respective spot markets. While measures of linear dependence and feedback indicate strong connections between the respective markets, futures volatility does not significantly explain spot market volatility, nor does it increase after futures introductions. To account for the characteristics of the spot and futures returns a SWARCH model has been employed to estimate volatility.

Book Reviews>

Alexandratos, Nikos (ed.) World Agriculture: Towards 2010. An FAO StudyApffel‐Marglin, Frédérique and Marglin, Stephen A. (eds) Decolonizing Knowledge: From Development to DialogueBrown, Lester R. Tough Choices. Facing the Challenge of Food ScarcityBrown, Lester R. Who Will Feed China? Wake‐Up Call for a Small PlanetBrown, Lester R., Renner, Michael and Flavin, Christopher Vital Signs 1997Datt, Gaurav Bargaining Power, Wages and Employment: An Analysis of Agricultural Labour Markets in IndiaEyzaguirre, Pablo Agriculture and Environmental Research in Small CountriesFAO The Sixth World Food SurveyGarnaut, Ross, Shutian, Guo and Guonan, Ma (eds) The Third Revolution in the Chinese CountrysideGeorgiou, Stavros, Whittington, Dale, Pearce, David and Moran, Dominic Economic Values and the Environment in the Developing WorldHermes, Niels and Lensink, Robert (eds) Financial Development and Economic Growth: Theories and Experiences from Developing CountriesHowe, John Transport for the Poor or Poor Transport?Hulme, David and Edwards, Michael (eds) NGOs, States and Donors: Too Close for Comfort?International Food Policy Research Institute, A 2020 Vision for Food, Agriculture and the EnvironmentLaothamatas, Anek (ed.) Democratization in Southeast and East AsiaLing, Zhu and Zhongyi, Jiang Public Works and Poverty Alleviation in Rural ChinaMacPherson, Stewart and Cheng, Joseph Y.S. (eds) Economic and Social Development in South ChinaManzungu, Emmanuel and van der Zaag, Pieter (eds) The Practice of Smallholder Irrigation: Case Studies from ZimbabweMitchell, Donald O., Ingco, Merlinda D. and Duncan, Ronald C. The World Food OutlookPeebles, Gavin and Wilson, Peter The Singapore EconomyRapley, John Understanding Development: Theory and Practice in the Third WorldRoett, Riordan (ed.) The Mexican Peso Crisis: International PerspectivesSchelhas, J. and Greenberg, Russell (eds) Forest Patches in Tropical LandscapesSchlyter, Ann (ed.) A Place to Live: Gender Research on Housing in AfricaSumberg, J. and Okali, C. Farmers’ Experiments: Creating Local KnowledgeWorldwatch Institute The State of the World 1997Young, E.M. World HungerYugandhar, B.N. (ed.) Land Reforms in India. Vol. 3: Andhra Pradesh — People’s Pressure and Administrative Innovations

Foreign Finance and the Collapse of the Mexican Peso

Foreign Finance and the Collapse of the Mexican Peso

Power Tools for an Effective and Responsible Presidency

The Clinton administration has made frequent and significant use of executive orders and other tools that are available to presidents on problems as diverse as the Mexican peso crisis and labor disputes over striker replacements. The tools of presidential direct administration are complex devices that often overlap and pose wide-ranging consequences. This article seeks to present a useful survey and analysis of the basic tools of presidential direct administration and points out the dangers as well as the opportunities presented by these devices.

The Organization of Labor Resources in Juárez Families: A Focus on Working Women's Households During Economic Restructuring

In 1995, Mexico again slid into economic and social crisis without full recovery from the crisis of 1982. When the Mexican peso plunged in value right before Christmas 1994, many segments of the society that were affected had not regained the purchasing power of 1980. The broad outline of the Mexican government's program for responding to the most recent crisis is parallel to the prescriptions offered in the 1980s; indeed, the response represents prevailing mainstream neo‐liberal economic thinking — stabilization, structural adjustment, privatization, and so on. However, lacking a well developed social welfare system, the burdens of adaptation to adverse economic conditions fall primarily on women in households in the struggle to preserve individual well‐being. This paper, then, joins a growing body of work attempting to analyze the connection between micro‐level household conditions, including gender relations, and gendered macro‐level processes, such as ongoing economic liberalization in Mexico.

An application of four foreign currency forecasting models to the U.S. dollar and Mexican peso

An application of four foreign currency forecasting models to the U.S. dollar and Mexican peso

Volatility in Emerging Stock Markets

This study examines the daily, weekly, and monthly behavior of volatility in emerging stock markets in local currency and in dollar-adjusted returns. An iterated cumulative sums of squares methodology is used to identify the points and magnitude of shocks/sudden changes in the unconditional variance of returns in each market. Both increases and decreases in the variance are identified. The high volatility in emerging markets is not simply continuous, but is marked by shocks. The large changes in volatility seem to be related to important country-specific political, social and economic events. These events include the Mexican Peso crisis, periods of hyperinflation in Latin America, the Marcos-Aquino conflict in the Philippines, and the stock market scandal in India. The October 1987 crash is the only “global event” in the last decade that caused a significant jump in the volatility of several emerging stock markets. After accounting for these shocks, ARCH/GARCH effects are considerably reduced.

From banks to bonds: a problem resolved? A perspective from the LDC debt literature

The anouncement in October 1995 of an agreement with Peru marked the concluding stages of the commercial bank debt crisis tirggered by Mexico in August 1982. With its completion all major Latin American nations will have succeeded in exchanging partially defaulted bank loans into marketed bonds therefore normalizing their external financial relations. After a lost decade'of great depression proportions for the continent, and stimulated by these post 1989 ‘Brady’ agreements, the flow of net private funding to the developing countries approximately quadroupled in the present decade to reach almost $175 billion in 1994 (Sachs, 1990; World Bank, 1994) Recognizing that capital markets rather than the banks have been responsible for around half of the renewed flows, this survey assesses the contemporary relevance of the debt literature which was to mimic during the previous decade the earlier growth of commercial bank claims on LDCs. Although comprehensive surveys are available elsewhere, our intention is to review key arguments in the light of the securitization of finance during the present decade(see Eaton et al., 1986; Eaton and Taylor, 1986; Cohen, 1991; Eaton, 1993). The survey begins with theoretical aspects of the borrowing and lending decision, assuming optimizing agents, and noting the unavoidable complications introduced by sovereign risk which the literature has emphasized. Subsequently two key practical considerations are introduced, political exigency in the demand for loans and market derived instability in their supply. Difficulties in both of these areas were implicated in the financial crisis which culminated in the devaluation of the Mexican peso in December 1994. By offering the prospect that future crises could be contained without threats to the banking system necessitating official intervention, the revival of the capital market finance which favoured Mexico in the first half of the 1990s has been widely welcomed. Large-scale multilateral support in early 1995, however, was to cast doubt on this assumption and a final section therefore addresses changing perceptions of the role of the IMF in crisis management. If ‘securitization’ is seen as a return to the nineteenth-century norm in which bond issues, portfolio and direct investment dominated capital inflows to LDCs, comparitive studies suggest that a market panacea has not been rediscovered. Major loan expansions in the 1820s, 1880s 1900-14 and the 1920s all ended in default crises despite being dominated by bond finance (Eichengreen and Lindert, 1989). The fragile response of international investors to emerging market risk in general during early 1995 certainly suggests that the potential for systemic crises has not been eliminated by renewed reliance on marketed instruments. By distinguishing between problems which are general to international lending and those unique to bank intermediation, the survey attempts to highlight the basic requirements for sustainable capital inflows to LDCs. © 1997 by John Wiley & Sons, Ltd.

Latin America's Underperformance

In the last few years Latin American economies have undergone a remarkable transformation. Nations that sneered at the market system and pursued protectionist policies have suddenly embraced structural re forms aimed at stabilizing their economies, deregulating business prac tices, and becoming integrated with the rest of the world. After the Mex ican peso crisis of December 1994, many observers predicted this process would end or, in some nations, be reversed. Their prediction proved false. Perhaps surprisingly, the reform effort continues?albeit at a different pace?in most countries. Now it appears that the Mexican crisis was a wake-up call for the region. Most political leaders realize that the reform process must intensify in order to build truly robust economies. It is unclear, however, whether more rapid reform will be politi cally feasible. After almost a decade of reform, the region has little to show in improved economic performance and social conditions. Poverty has not been reduced. Growth has been modest at best. In many countries wages have stagnated and job creation has been slug gish. The reining in of inflation has been one of the few commend able accomplishments. Until recently the Latin American population had given remarkable support to the reform process, rewarding political leaders who tackled their countries' perennial economic problems. The reelection of Presi dent Carlos Sa?l Menem in Argentina and the election of President Fer nando Henrique Cardoso in Brazil have been perhaps the best examples.

Bank Concentration and the Supply of Credit in Argentina

This paper examines the effects on the supply of credit of the concentration of financial institutions in Argentina that followed the crisis caused by the December 1994 devaluation of the Mexican peso. While the concentration process may have improved the efficiency of domestic financial intermediation, the analysis suggests that, due to the presence of information asymmetries in the banking sector, it also may have contributed to the contraction in bank lending observed during 1995.

Borrowing Risk and the Tequila Effect

This paper models the Tequila effect (triggered by the collapse of the Mexican peso in December 1994) as a temporary increase in the risk premium faced by domestic private borrowers on world capital markets. The effects of this shock are studied in an intertemporal optimizing framework where firms` demand for working capital is financed by bank credit. Under the assumption that the perceived duration of the shock is sufficiently long, the model is capable of reproducing some of the main features of Argentina`s economic downturn in the aftermath of the collapse of the Mexican peso: the rise in domestic interest rates, the reduction in net private capital inflows and the drop in official reserves, the reduction in bank deposits and credit supply, the fall in private consumption, the contraction in output, and the increase in unemployment.

Borrowing Risk and the Tequila Effect

This paper models the Tequila effect (triggered by the collapse of the Mexican peso in December 1994) as a temporary increase in the risk premium faced by domestic private borrowers on world capital markets. The effects of this shock are studied in an intertemporal optimizing framework where firms’ demand for working capital is financed by bank credit. Under the assumption that the perceived duration of the shock is sufficiently long, the model is capable of reproducing some of the main features of Argentina’s economic downturn in the aftermath of the collapse of the Mexican peso: the rise in domestic interest rates, the reduction in net private capital inflows and the drop in official reserves, the reduction in bank deposits and credit supply, the fall in private consumption, the contraction in output, and the increase in unemployment.

Bank Concentration and the Supply of Credit in Argentina

This paper examines the effects on the supply of credit of the concentration of financial institutions in Argentina that followed the crisis caused by the December 1994 devaluation of the Mexican peso. While the concentration process may have improved the efficiency of domestic financial intermediation, the analysis suggests that, due to the presence of information asymmetries in the banking sector, it also may have contributed to the contraction in bank lending observed during 1995.

The Mexican peso crisis

In the author’s view, the Mexican financial crisis which erupted at the end of 1994 was not unique, although it did have some special features. Thus, since it could happen again, it would be desirable to gain an in-depth understanding of it. This article therefore analyses the process and underlying causes of the Mexican peso crisis. For this purpose, the author distinguishes three main periods. The first of these extends from the beginning of 1990 up to March 1994, and an analysis is made of the problems that were hatching and the policy options that were available. With regard to the second period -from March 1994 to 20 December of that year- the available options are likewise examined. In the case of the third period, attention is centered on the devaluation and the resulting crisis, and an appraisal is made of the way they were handled.

Las mujeres de México y la revolución neoliberal

Miguel Angel Centeno's evaluation of the neoliberal reforms of President Carlos Salinas de Gortari were only half right. As shown by the near panic that ensued following the December 1994 devaluation, the macroeconomics weren't all that hot either. The deficit in the current account and the consequent strain on foreign currency reserves put enormous pressure on the Mexican peso. For every peso that foreign investors took out of the Mexican economy, two pesos were sent abroad by Mexican nationals, according to the IMF report of August 1995. Once again the full brunt of the new crisis fell not only upon the shoulders of the middle class, who suffe red inflationary price rises that reached 70 percent on an annualized basis in March 1995, but also on the working people of the country, who felt the double blow of inflation and unemployment. The United States loan averted similar blows to the investing classes, who escaped with their dollarized tesobonos and their consciences untouched.

Capital Mobility and Currency Markets: Can They be Tamed?

One of the most distinctive features of the contemporary world economy is the speed and volume of crossborder financial flows. The barriers that separated finance into distinct, nationally based systems after the Second World War have been rapidly dismantled over the past two decades. Numerous countries which in the past expressed concern about the possible negative effects of dependence on capital inflows have changed their tune. In the midst of this enthusiastic liberalization and globalization of finance an increasingly vocal chorus of influential policymakers and scholars has begun to express concern about the negative effects of heightened capital mobility on the real economy, on the capacity of governments to carry out national macroeconomic policy, and on the stability of the financial system. The Mexican peso crisis of December 1994, in which an estimated 1 2 per cent of foreign investment fled the country in eight days,1 inflicting what appears to many to be excessively brutal hardship on the country's population, has stimulated these concerns. So, too, has the contribution of speculative capital flows to the 1992 and 1993 crises in the European Exchange Rate Mechanism (erm) with their negative consequences for European integration. In part the sheer volume of transactions US$1.2 trillion in foreign exchange transactions a day in 1995, up 14-fold since 1972 and 50 per cent since 1992, and dwarfing the

Collapsing exchange rate regimes: Another linear example

In the literature on speculative attacks on a fixed exchange rate it is usually assumed that the monetary authority responsible for fixing the rate reacts passively to the monetary disruption caused by the attack. This assumption is grossly at odds with actual experience where the monetary base implications of the attacks are usually sterilized. Such sterilization means that the attack is no longer exclusively a monetary event and requires that the standard attack model be broadened to include the effects of sterilization on other markets. These issues are motivated by reference to the December 1994 collapse of the Mexican peso.