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DEMAND SHOCKS: EVIDENCE FROM A VECTOR AUTOREGRESSION MODEL OF MEXICO'S RECESSION AND RECOVERY IN THE 1990s

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  • Justino De La Cruz Martinez

Abstract

We analyze the recession and recovery of Mexico during the 1990s by estimating a vector autoregression of aggregate expenditures. The model suggests that, in addition to fiscal, monetary, and exchange rates policies, “expectational” shocks played a significant role in the 1995 recession but not in the insuring recovery. This indicates that when policy factors explain only a portion of the shocks, the public's pessimism and anxiety about the future should be considered important in policymaking. Finally, contrary to the conventional believe that depreciation will raise economic growth, this study finds that Peso depreciation will bring about a recession. [E32, C32]

Suggested Citation

  • Justino De La Cruz Martinez, 2001. "DEMAND SHOCKS: EVIDENCE FROM A VECTOR AUTOREGRESSION MODEL OF MEXICO'S RECESSION AND RECOVERY IN THE 1990s," International Economic Journal, Taylor & Francis Journals, vol. 17(2), pages 37-53.
    • Handle: RePEc:taf:intecj:v:17:y:2001:i:2:p:37-53
    DOI: 10.1080/10168730300080011
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    References listed on IDEAS

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    1. Rogers, John H. & Wang, Ping, 1995. "Output, inflation, and stabilization in a small open economy: Evidence from Mexico," Journal of Development Economics, Elsevier, vol. 46(2), pages 271-293, April.
    2. Pagan, Adrian, 1987. "Three Econometric Methodologies: A Critical Appraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 1(1), pages 3-24.
    3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
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