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The giant sucking sound: did NAFTA devour the Mexican peso?

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Abstract

Five years of economic reforms had made Mexico a model for other developing nations by the end of 1993, when Mexico was preparing to enter into the North American Free Trade Agreement (NAFTA) with Canada and the United States. But less than a year later, in December 1994, Mexico experienced a severe financial crisis, forcing it to borrow from the IMF and the United States. Some commentators blamed the enactment of NAFTA for the devaluation of the peso and the ensuing economic turmoil in Mexico, with some calling for renegotiation or even repeal of the agreement. Author Christopher J. Neely examines the relationship between NAFTA and the 1994 peso crisis and raises some provocative questions: did NAFTA cause or exacerbate the devaluation of the peso? or did NAFTA help alleviate some of the consequences of the crisis?

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  • Christopher J. Neely, 1996. "The giant sucking sound: did NAFTA devour the Mexican peso?," Review, Federal Reserve Bank of St. Louis, vol. 78(Jul), pages 33-48.
    • Handle: RePEc:fip:fedlrv:y:1996:i:jul:p:33-48:n:v.78no.5
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    1. Drusilla K. Brown & Alan V. Deardorff & Robert M. Stern, 2011. "A North American Free Trade Agreement: Analytical Issues and a Computational Assessment," World Scientific Book Chapters, in: Robert M Stern (ed.), Comparative Advantage, Growth, And The Gains From Trade And Globalization A Festschrift in Honor of Alan V Deardorff, chapter 40, pages 557-575, World Scientific Publishing Co. Pte. Ltd..
    2. Linda M. Aguilar, 1993. "NAFTA: a review of the issues," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 17(Jan), pages 12-20.
    3. Calvo, Guillermo A, 1996. "Capital Flows and Macroeconomic Management: Tequila Lessons," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 207-223, July.
    4. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
    5. Corbo, Vittorio & de Melo, Jaime, 1987. "Lessons from the Southern Cone Policy Reforms," The World Bank Research Observer, World Bank, vol. 2(2), pages 111-142, July.
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    Cited by:

    1. Christopher J. Neely, 2017. "Chinese Foreign Exchange Reserves, Policy Choices, and the U.S. Economy," Review, Federal Reserve Bank of St. Louis, vol. 99(2).
    2. Steven Yee & Miguel D. Ramirez, 2016. "Purchasing Power Parity: A Time Series Analysis of the U.S. and Mexico, 1995–2007," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(4), pages 409-419, November.
    3. Malgorzata Sulimierska, 2008. "The Theoretical Link Between Capital Account Liberalization and Currency Crisis Episodes," International Trade and Finance Association Conference Papers 1111, International Trade and Finance Association.
    4. S. Rubun Dey & Christopher J. Neely, 2010. "A survey of announcement effects on foreign exchange returns," Review, Federal Reserve Bank of St. Louis, vol. 92(Sep), pages 417-464.
    5. David M. Gould, 1998. "Has NAFTA changed North American trade?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q 1, pages 12-23.
    6. Christopher J. Neely, 2024. "The economic effects of a potential armed conflict over Taiwan," Working Papers 2024-034, Federal Reserve Bank of St. Louis.
    7. James B. Bullard & Christopher J. Neely & David C. Wheelock, 2009. "Systemic risk and the financial crisis: a primer," Review, Federal Reserve Bank of St. Louis, vol. 91(Sep), pages 403-418.
    8. Chu V. Nguyen, 2016. "Subpar Performance of the Mexican Economy in the NAFTA Era: Plausible Explanations," The International Trade Journal, Taylor & Francis Journals, vol. 30(5), pages 449-463, October.

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