The Mexican Peso Crisis: Sudden Death or Death Foretold?

  title={The Mexican Peso Crisis: Sudden Death or Death Foretold?},
  author={J. Sachs and A. Tornell and A. Velasco},
  journal={Latin American Economics},
  • J. Sachs, A. Tornell, A. Velasco
  • Published 1996
  • Economics
  • Latin American Economics
  • We argue that allowing for the possibility of a self-fulfilling panic helps in understanding 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. Lastly, we argue that the imperfect credibility of Mexican exchange… CONTINUE READING
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