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The 1994 Mexican Economic Crisis: The Role of Government Expenditure and Relative Prices
Author:
Mr. Eliot Kalter
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Mr. Armando P. Ribas null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1999: Issue 160
Language:
English
Publication Date:
01 Dec 1999
DOI:
https://doi.org/10.5089/9781451857726.001
ISBN:
9781451857726
ISSN:
1018-5941
Pages:
23
Keywords:
WP; goods; goods sector; price; goods price; deficit; Mexican economic crisis; government expenditure; relative prices; rate of return; exchange rate; nontradable goods; Bank credit; Private savings; Real interest rates; Commercial banks
Legal-disclaimer:
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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This paper discusses the role of a country’s fiscal stance in weakening the financial underpinnings of an open economy with a quasi-fixed nominal exchange rate, even where the overall fiscal deficit remains unchanged, or even narrows. The paper cites the role of expanding government operations in reducing the relative price of traded goods. A marked increase in government expenditure and taxation is associated with increased production costs, excess demand for nontraded goods, and a deterioration in the financial health of the traded goods sector. The paper demonstrates that, in contrast to the current economic situation in Mexico, the period leading to the 1994 crisis closely parallels these stylized facts.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund