What Happened to Mexico in 1994–95?
On December 20,1994 the Mexican government announced that it had widened the band in which it allowed the Mexican peso to trade against the U.S. dollar. The value of the peso quickly fell to the floor of this band, devaluating by 15 percent. It remained there for two days, until December 22, when the government announced that it would let the value of the peso float freely. The peso then devalued even further (see Figure 7–2), touching off a financial crisis not only in Mexico but throughout the world.
KeywordsExchange Rate Interest Rate Financial Crisis Capital Stock Total Factor Productivity
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