The 1994 Mexican Economic Crisis: The Role of Government Expenditure and Relative Prices
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Summary:
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.
Series:
Working Paper No. 1999/160
Subject:
Bank credit Commercial banks Expenditure Financial institutions Financial services Money National accounts Private savings Real interest rates
Frequency:
Annually
English
Publication Date:
December 1, 1999
ISBN/ISSN:
9781451857726/1018-5941
Stock No:
WPIEA1601999
Pages:
23
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