Abstract:
The purpose of this study is to develop an analytical framework for identifying and evaluating conditions that precipitate currency devaluation like those experienced by Mexico in 1994. This study develops a framework of financial and macroenvironmental indicators that point to potential currency
devaluation in the future. Some of these indicators are: the
level of interest rates, Balance of Payments information, the
general political environment, and the timeliness of governmental
information releases. The framework will rely on international
parity conditions, Balance of Payments relationships, and
political events to link the indicators to predictions of currency
devaluation. The framework will be applied to the currency crisis
of Mexico in 1994 to serve as an example.
