THE BALANCE OF PAYMENTS AND BORROWING CONSTRAINTS - AN ALTERNATIVE VIEW OF THE MEXICAN CRISIS

In this paper we develop a model in which a country faces a balance of payments crisis if constraints on its international borrowing bind. W e use the model to describe the dynamics of the trade balance, capital account, and balance of payments of a country that borrows to finance consumption following sweeping macroeconomic and structural reforms a nd then hits constraints on its international borrowing. We compare th e predictions of this theoretical example with events in Mexico from 1 987 through 1995.