SPECULATIVE ATTACKS AND CURRENCY CRISES - THE MEXICAN EXPERIENCE

By using data from the Mexican economy, this paper estimates a specula tive attack model of currency crises in order to identify the role of macroeconomic fundamentals and early warning signals of a potential cu rrency crisis. A deterioration in fundamentals appears to generate hig h onestep-ahead probabilities for the observed regime changes during t he sample period 1982-1994. Particularly, foreign reserve losses, expa nsionary output, monetary and fiscal policies, an increase in inflatio n differentials and the share of short-term foreign currency-indexed d ebt, and an appreciation of the real exchange rate appear to have cont ributed to the speculative pressures and the associated regime changes .