The Role of Information Disparity in the 1994/95 Mexican Peso Crisis: Empirical Evidence

28 Pages Posted: 1 Oct 2003

Date Written: August 13, 2003

Abstract

In the Mexican Peso crisis 1994/95, the lack of readily available information, particularly regarding monetary aggregates, has often been commented on. This paper analyzes empirically whether information disparity with respect to economic fundamentals contributed to the crisis. Using historical forecast data collected by Consensus Economics, we show that uncertainties, as measured by the forecast variation, significantly influenced the pressure on the fixed Peso rate. This effect is additional to the one that actual and expected fundamentals had on the exchange rate pressure. Furthermore, the impact of information disparity is found to be contingent on the market expectation about fundamentals. It seems that the central bank's strategy of not publicly disclosing information was detrimental for the very reason that the market sentiment was generally optimistic with regard to the monetary development.

Keywords: Currency Crisis, Speculative Attack, Private and Public Information, Transparency

JEL Classification: F31, D84, D82

Suggested Citation

Bannier, Christina E., The Role of Information Disparity in the 1994/95 Mexican Peso Crisis: Empirical Evidence (August 13, 2003). Available at SSRN: https://ssrn.com/abstract=440947 or http://dx.doi.org/10.2139/ssrn.440947

Christina E. Bannier (Contact Author)

Justus-Liebig-University Giessen ( email )

Licher Str. 62
Gießen, 35394
Germany
+49 641 99 22551 (Phone)

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