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Deja Vu All Over Again? the Mexican Crisis and the Stabilization of Uruguay in the 1970's
Author:
Mr. Mario I. Bléjer
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Series:
IMF Working Papers
Volume/Issue:
Volume 1996: Issue 080
Language:
English
Publication Date:
01 Jul 1996
DOI:
https://doi.org/10.5089/9781451955545.001
ISBN:
9781451955545
ISSN:
1018-5941
Pages:
34
Keywords:
WP; nominal interest rate; interest rate; policy mix; stabilization strategy; stabilization-cum-reform attempt; trade balance; Mexico's economy; exchange rate overvaluation; Exchange rate policy; Exchange rates; International reserves; Domestic credit; North America; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Comparing the 1978-82 Uruguayan stabilization with the 1990-94 Mexican experience reveals that exchange rate based stabilization tends to increase the economy’s vulnerability to unexpected shocks. An exchange rate rule, with full capital mobility, can only succeed if compatible financial policies are strictly adhered to--even when severe negative shocks take place--and if reliance on persistent capital inflows is not essential. This requires monetary restraint, even under serious recessionary conditions, and tight fiscal policies to moderate interest rates. The epilogues of both experiences demonstrate that abandoning the exchange rate rule in the wake of a shock, even if inevitable, makes future stabilization more difficult.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund