The Balance of Payments and Borrowing Constraints: An Alternative View of the Mexican Crisis / Andrew Atkeson, Jose-Victor Rios-Rull.

Format:

Book

Author/Creator:

Atkeson, Andrew.

Contributor:

National Bureau of Economic Research.

Rios-Rull, Jose-Victor.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5329.

NBER working paper series no. w5329

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Balance of Payments and Borrowing Constraints

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1995.

Summary:

In standard models of the balance of payments, crises occur when investors begin to doubt the credibility of the government's commitment to its exchange rate policy. In this paper, we develop an alternative model in which balance of payments crises occur even if the credibility of government fiscal, monetary, and exchange rate policies is never in doubt. In this alternative model, international lending is constrained by the risk of repudiation. Balance of payments crises occur when the government and citizens of a country hit their international borrowing constraints. Our model is broadly consistent with events in Mexico from 1987-1995. More generally, our model suggests that countries which undertake sweeping macroeconomic and structural reforms should expect to face a balance of payments crisis when they exhaust their access to international capital inflows.

Notes:

Print version record

October 1995.