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Working Paper Summaries (WP/92/1 - WP/92/47)
Article

“From the Debt Crisis Toward Economic Stability: An Analysis of the Consistency of Macroeconomic Policies in Mexico”

Author(s):
International Monetary Fund
Published Date:
August 1992
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The interrelationship between fiscal, monetary, and exchange rate policies in Mexico from the late 1970s to mid-1991 is examined for the purpose of critically evaluating the consistency of the macroeconomic policies that were undertaken since the emergence of the debt crisis in 1982 and of analyzing key policy issues that arose during the subsequent stabilization efforts.

A major finding is that the interaction between the actual implementation of economic policies and economic perceptions about the sustainability of those policies has played a central role in the dynamics of major macroeconomic variables since 1982. In particular, the paper shows how concerns of economic agents about the sustainability of stabilization programs increased the cost of adjustment by requiring tighter stabilization policies. Indeed, the analysis suggests that the restoration of credibility evident since 1989 was associated with adjustments in the fiscal, monetary, and exchange rate variables greater than those consistent with price stability in the long run.

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