Deja Vu All Over Again? the Mexican Crisis and the Stabilization of Uruguay in the 1970's

July 1, 1996

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Mario I. Bléjer, and Graciana Castillo. Deja Vu All Over Again? the Mexican Crisis and the Stabilization of Uruguay in the 1970's, (USA: International Monetary Fund, 1996) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Comparing the 1978-82 Uruguayan stabilization with the 1990-94 Mexican experience reveals that exchange rate based stabilization tends to increase the economy’s vulnerability to unexpected shocks. An exchange rate rule, with full capital mobility, can only succeed if compatible financial policies are strictly adhered to--even when severe negative shocks take place--and if reliance on persistent capital inflows is not essential. This requires monetary restraint, even under serious recessionary conditions, and tight fiscal policies to moderate interest rates. The epilogues of both experiences demonstrate that abandoning the exchange rate rule in the wake of a shock, even if inevitable, makes future stabilization more difficult.

Subject: Central banks, Domestic credit, Exchange rate policy, Exchange rates, Financial crises, Foreign exchange, International reserves, Money

Keywords: Domestic credit, Exchange rate overvaluation, Exchange rate policy, Exchange rates, Global, Interest rate, International reserves, Mexico's economy, Nominal interest rate, North America, Policy mix, Stabilization strategy, Stabilization-cum-reform attempt, Trade balance, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/080
Stock No:

WPIEA0801996
ISBN:

9781451955545
ISSN:

1018-5941

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