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 prese...

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Bibliographic Details

Main Authors:	Ab Iorwerth, Aled (Author), Whalley, John 1947- (Author)
Format:	Book
Language:	English
Published:	Cambridge, Mass. 1998
Series:	National Bureau of Economic Research <Cambridge, Mass.>: NBER working paper series 6653
Subjects:	Aliments - Prix - Modèles économétriques Restaurants - Impôt - Modèles économétriques Restauration collective - Impôt - Modèles économétriques Taxe de vente - Modèles économétriques Taxe à la valeur ajoutée - Modèles économétriques Steuer Ökonometrisches Modell Food prices > Econometric models Food service > Taxation > Econometric models Restaurants > Taxation > Econometric models Use tax > Econometric models Value-added tax > Econometric models
Online Access:	Volltext
Summary:	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 rate policy made it advisable to follow more contractionary fiscal and monetary policies in 1994. Our model formalizes the reasons why this is so.
Physical Description:	24 S.