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The balance of payments and borrowing constraints: an alternative view of the Mexican crisis

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  • Andrew Atkeson
  • José-Víctor Ríos-Rull

Abstract

In this paper we develop a model in which a country faces a balance of payments crisis if constraints on its international borrowing bind. We use the model to describe the dynamics of the trade balance, capital account, and balance of payments of a country that borrows to finance consumption following sweeping macroeconomic and structural reforms and then hits constraints on its international borrowing. We compare the predictions of this theoretical example with events in Mexico from 1987 through 1995.

Suggested Citation

  • Andrew Atkeson & José-Víctor Ríos-Rull, . "The balance of payments and borrowing constraints: an alternative view of the Mexican crisis," Staff Report, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:212
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    References listed on IDEAS

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    Cited by:

    1. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December.
    2. Eduardo Fernández-Arias & Davide Lombardo, 2002. "Market Discipline and Exuberant Foreign Borrowing," Central Banking, Analysis, and Economic Policies Book Series, in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 11, pages 333-360, Central Bank of Chile.
    3. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
    4. V. V. Chari & Patrick J. Kehoe, 2003. "Hot Money," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1262-1292, December.
    5. Lagunoff, Roger & Schreft, Stacey L., 2001. "A Model of Financial Fragility," Journal of Economic Theory, Elsevier, vol. 99(1-2), pages 220-264, July.
    6. Felipe Meza, 2008. "Financial Crisis, Fiscal Policy, and the 1995 GDP Contraction in Mexico," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(6), pages 1239-1261, September.
    7. Aßmann, Christian, 2008. "Assessing the Effect of Current Account and Currency Crises on Economic Growth," Economics Working Papers 2008-01, Christian-Albrechts-University of Kiel, Department of Economics.
    8. Jaime Guajardo, 2004. "Financial Frictions and Business Cycles in Developing Countries," Econometric Society 2004 Latin American Meetings 307, Econometric Society.
    9. Mr. Jaime Guajardo, 2008. "Financial Frictions and Business Cycles in Middle-Income Countries," IMF Working Papers 2008/020, International Monetary Fund.
    10. Sebastian Edwards, 2002. "Does the Current Account Matter?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 21-76, National Bureau of Economic Research, Inc.
    11. Aßmann, Christian, 2007. "Determinants and Costs of Current Account Reversals under Heterogeneity and Serial Correlation," Economics Working Papers 2007-17, Christian-Albrechts-University of Kiel, Department of Economics.
    12. Fausto Hernández Trillo & Alejandro Villagómez Amezcua, 2000. "La estructura de la deuda pública en México: Lecciones y perspectivas," Research Department Publications 3104, Inter-American Development Bank, Research Department.
    13. Marco Del Negro & Francesc Obiols-Homs, 2001. "Has monetary policy been so bad that it is better to get rid of it? The case of Mexico," Proceedings, Federal Reserve Bank of Cleveland, pages 404-439.
    14. Rajesh Singh & Chetan Subramanian, 2009. "Temporary Stabilizations, Sudden Stops, and Asset Prices," Review of Development Economics, Wiley Blackwell, vol. 13(2), pages 333-347, May.
    15. M Cruz, 2003. "A Minskyian Crisis: An Application to the 1994-95 Mexican Experience," Economics Discussion Paper Series 0325, Economics, The University of Manchester.
    16. Pozo, Jorge, 2023. "Bank risk-taking in emerging economies: Empirical evidence and theory," Journal of Financial Stability, Elsevier, vol. 67(C).
    17. Ho-Don Yan, 1999. "Intertemporal current account balance and the East Asian currency crises," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(3), pages 277-288, August.
    18. V. V. Chari & Patrick J. Kehoe, . "Hot money," Staff Report, Federal Reserve Bank of Minneapolis.
    19. Jaime C. Guajardo, 2007. "Financial Frections and Business Cycles in Middle Income Countries," Working Papers Central Bank of Chile 444, Central Bank of Chile.

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