Expectations, the Business Cycle and the Mexican Peso Crisis Moritz Cruz, Edmund Amann & Bernard Walters

Using Minsky’s financial fragility hypothesis, this paper provides empirical evidence with particular attention paid to the role of domestic financial liberalization in explaining the 1994-95 ‘Peso’ crisis in Mexico. Minsky’s hypotheses about the evolution of expectations over the business cycle are tracked using business survey data. In addition, crisis indicators are constructed, reflecting the changing vulnerability of the economy to shocks.

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