Currency Crisis in Latin America: Case Study of Mexico. Brazil and Argentina

Abstract

The discussion of currency crises has been one of the popular topics in international economics. Since many countries adopt financial liberalization, the impact of the currency crises has become more serious and more infectious to other countries. I examined three recent cases of currency crises in Latin America: the Mexican crisis in 1994, the Brazilian crisis in 1999 and the Argentine crisis in 2002 (According to the IMF paper, 2001 ). Although many economists now pay attention to the relationship between the problems of financial sector and currency crises, I focus on the unique pattern of American currency crises, fixed exchange rate, overvaluation of the currency, deterioration of the external sector and capital outflow. From this pattern, I recommend real exchange rate, international reserves and current account deficit as effective indicators of currency crises in these countries. I also examined how much fixed exchange rate contributed to the control of inflation in these countries by OLS, and found that it contributed significantly to the reduction of the inflation.